3. Introduction
Governments levy taxes on its population to create revenue
for projects that benefit the country's economy and increase
the standard of living for its citizens. The jurisdiction of the
government to levy taxes in India is derived from the Indian
Constitution, which delegated tax-levying powers to the
Central and State governments. All taxes charged within India
must be accompanied by legislation passed by the Parliament
or the State Legislature.
There are two types of taxes: direct and indirect taxes.
Direct taxes are those that you pay directly. These taxes
are imposed directly on a company or an individual and
cannot be transmitted to another person or entity. The
Central Board of Direct Taxes (CBDT), which is part of the
Department of Revenue, is one of the bodies in charge of
these direct taxes. It has the backing of many acts that
govern various parts of direct taxation to aid it with its
obligations.
Indirect taxes, by definition, are those levied
on products or services. They differ from
direct taxes in that they are placed on items
and collected by an intermediary, the person
selling the commodity, rather than on
individuals who pay them directly to the
government. The most typical types of
indirect taxation VAT (Value Added Tax),
taxes on imported goods, sales tax, and
other indirect taxes are examples. These
taxes are levied by adding them to the price
of the service or product, causing the price of
the product to rise.
*source: https://www.startupindia.gov.in/content/sih/en/international/go-to-
market-guide/tax-system-india.html, https://www.investindia.gov.in/taxation
4. Acts Related to Taxation
Income Tax Act: This act, often known as the Income Tax Act of 1961, establishes the rules that regulate income taxation in India. The income
taxed by this act can originate from any source, including a business, owning a home or property, gains from investments and salary, and so on.
This is the statute that specifies the amount of the tax advantage on a fixed deposit or a life insurance premium. It is also the statute that
determines how much of your income can be saved through investments and what the income tax slab will be.
Wealth Tax Act: The Wealth Tax Act, initially enacted in 1951 in India, was responsible for taxing the net wealth of individuals, companies, and
Hindu Unified Families. The tax was calculated as 1% of the amount that exceeded Rs. 30 lakhs in net wealth. However, this tax was abolished
in the 2015 budget. In its place, a surcharge of 12% was introduced on individuals earning more than Rs. 1 crore per annum and on companies
with annual revenues exceeding Rs. 10 crores. This change in taxation significantly increased the government's revenue collection compared
to the relatively modest proceeds generated by the now-defunct wealth tax.
Gift Tax Act: the Gift Tax Act, which was initially introduced in 1958 and abolished in 1998, imposed a tax on gifts received by individuals.
Under the current rules, gifts from family members and local authorities are generally exempt from taxation, but any gifts exceeding Rs.
50,000 from non-exempt sources are subject to gift tax.
Expenditure Tax Act: This is the Act that went into effect in 1987 and deals with the expenses you may incur as an individual while using the
services of a hotel or a restaurant. Except for Jammu & Kashmir, it applies to the entire country of India. According to the act, certain charges
are payable if they exceed Rs. 3,000 in the case of a hotel and all expenses made in a restaurant.
Interest Tax Act: the Interest Tax Act of 1974 in India was a piece of legislation that focused on taxing interest income earned by
individuals, HUFs, and firms. It defined the scope, taxable interest types, tax rates, and exemptions related to interest income. However,
it was abolished in 2001, and interest income is now primarily subject to income tax as per the provisions of the Income Tax Act of 1961.
*source: https://www.startupindia.gov.in/content/sih/en/international/go-to-
market-guide/tax-system-india.html, https://www.investindia.gov.in/taxation
5. Direct Taxes: Types
Income Tax:
What is income tax?
It is a sort of direct tax levied by the government on the income earned by individuals and businesses throughout a fiscal year. Taxation is
how the government makes money. This money is spent by the government on infrastructure, healthcare, education, farm subsidies, and
other government social programmes.
Income Tax Slab:
The income tax slabs are different under the old and the new tax regimes. Further, the slab rates under the old tax regime are divided into
three categories.
• Indian Residents aged < 60 years + All the non-residents
• 60 to 80 years of age: Resident Senior citizens
• More than 80 years: Resident Super senior citizens
Income tax Slab Rate FY 2023-24
*source: https://cleartax.in/s/income-
6. Direct Taxes: Types
Capital Gain Tax:
Capital gains tax is a tax imposed on the profits earned when an asset is sold or transferred to another owner. It applies to all capital gains, but
the tax treatment varies between long-term and short-term gains. Taxpayers can employ tax-efficient strategies to minimize their capital gains tax
liability.
Types of Capital Gain Taxes:
Short term
Capital Gain
• A short-term asset is one that has been held for
less than 36 months. The period for immovable
properties is 24 months. Profits from the sale of
such an item would be considered short-term
capital gains and taxed accordingly.
Long Term
Capital Gain
• A long-term asset is one that has been kept for
more than 36 months. Profits from the sale of
such an item would be considered long-term
capital gains and would be taxed accordingly.
*source:https://groww.in/p/capital-
7. Direct Taxes: Types
Security Transaction Tax (STT):
STT, or Security Transaction Tax, is a sort of tax levied on the purchase and sale of securities such as stocks, mutual funds, and derivatives on
India's recognised stock exchanges. The STT is a direct tax, which means it is imposed directly on the transaction value of securities.
Taxable securities transaction Rate of
STT
Person
responsible to
pay STT
Value on which
STT is required
to be paid
Delivery based purchase of equity share 0.1% Purchaser Price at which
equity share is
purchased*
Delivery based sale of an equity share 0.1% Seller Price at which
equity share is
sold*
Delivery based sale of a unit of oriented
mutual fund
0.001% Seller Price at which
unit is sold*
Sale of equity share or unit of equity
oriented mutual fund in recognised stock
exchange otherwise than by actual
delivery or transfer and intra day traded
shares
0.025% Seller Price at which
equity share or
unit is sold*
Derivative – Sale of an option in securities 0.017% Seller Option premium
Derivative – Sale of an option in securities
where option is exercised
0.125% Purchaser Settlement price
Derivative – Sale of futures in securities 0.01% Seller Price at which
such futures is
traded
Sale of unit of an equity oriented fund to 0.001% Seller Price at which
*source: https://groww.in/blog/how-is-stt-levied
8. Direct Taxes: Types
Corporate Tax:
The Income Tax Act of 1961 imposes a corporate tax on both domestic and foreign corporations. Through this Act, the
Government of India requires domestic corporations to pay corporate taxes based on their total income. Foreign
corporations, on the other hand, are only taxed on income earned or received in India.
Corporate Tax
is calculated
under flowing
heads:
Profits Earned by Business
Income from Renting a Property
Capital Gains
Income from other sources
*source: https://taxsummaries.pwc.com/india/corporate/taxes-on-corporate-income
9. Indirect Taxes: Types
The government levies an indirect tax on goods and services. As a result, it can be transferred from one taxpaying individual to another. For
example, the wholesaler may pass it on to retailers, who would then pass it on to customers. Customers face the weight of indirect taxes as
a result. The Central Board of Indirect Taxes and Customs (CBIC) governs and administers indirect taxes.
Sales Tax Service Tax Octroi Duty
Custom Duty Value Added Tax
Goods & Services
Tax (GST)
*source:
https://www.startupindia.gov.in/content/sih/en/international/go-to-
market-guide/tax-system-india.html
10. Indirect Taxes: Types
Sales Tax
• Sales tax is a tax imposed on the sale of products, which
includes domestically produced goods, imported items, and
services.
• The burden of paying the sales tax falls on the seller, who
adds the tax amount to the product's price and collects it
from the buyer.
• Each Indian state follows its Sales Tax Act, resulting in
varying tax rates and additional charges.
• Sales tax is subject to regulation by both central and state
legislations
• Service tax in restaurants would be levied only on 40% of the
total bill.
VAT
• VAT is not applicable to certain
commodities, such as zero-rated items
(e.g., food and essential drugs) and goods
meant for export..
• VAT is levied at every stage of the supply
chain, including manufacturers, dealers,
distributors, and end-users.
• States may categorize goods into different
schedules, with each schedule having its
own VAT percentage.
• Goods that have not been classified into
any specific schedule are subject to a
standard VAT rate, which may vary by
state. In some cases, the standard VAT rate
is 15%.
*source:
https://www.startupindia.gov.in/content/sih/en/international/go-to-
market-guide/tax-system-india.html
11. Indirect Taxes: Types
Customs
Duty
• Import Tax: Customs duty is a tax levied on
goods imported from other countries. It
applies to products arriving in India via land,
sea, or air.
• Customs duty is imposed on a wide range of
imported products to ensure that they are
taxed and contribute to government
revenue.
• Even goods brought into India by individuals
for personal use can be subject to customs
duty.
Octroi
Charges
• Octroi is a tax levied by state governments
in India on goods crossing state borders. It
is meant to ensure that goods moving
between states are taxed appropriately.
• Octroi functions in a similar way to customs
duty but is focused on the movement of
goods within the country, specifically
between different states.
Central
Excise Duty
• Central Excise Duty is a tax levied on goods
manufactured or produced within India. It does not
apply to imported goods.
• Central Excise Duty is also referred to as the Central
Value Added Tax (CENVAT).
• The government collects Central Excise Duty from
the manufacturers of the goods.
• Excise duty is typically collected at multiple stages of
the production and distribution process. This ensures
that the tax is incrementally added to the cost of the
product.
*source:
https://www.startupindia.gov.in/content/sih/en/international/go-to-
market-guide/tax-system-india.html
12. Indirect Taxes: Types
Goods & Services Tax (GST):
GST is a comprehensive indirect tax applied at the national level on the manufacture, sale, and consumption of goods and services. It has
supplanted all indirect taxes levied by the Central and State Governments on goods and services.
The GST regime went into effect on July 1, 2017, and India has adopted the dual GST model, in which both the Centre and the States
impose taxes:
GST Collection Update: The gross GST revenue collected in July 2021 is INR 1,16,393 cr, of which INR 22,197 cr is CGST, INR
28,541 cr is SGST, and INR 57,864 cr is IGST.
The GST is applied to all commodities excluding the following:
• Human consumption alcoholic liquor
• Petroleum crude, high-speed diesel, motor spirit, natural gas and aircraft turbine fuel are the five petroleum products. GST will
be charged on these items after the effective date is announced.
*source: https://www.investindia.gov.in/taxation
