Tax is an economic instrument and the greatest income source for the Government of India. The money collected in the form of taxes is primarily used for financing public infrastructure and enhancing development projects. The tax system in India has a 3-tier federal structure.
Want to know more about the different types of taxes? Keep reading!
Tax refers to an obligatory contribution of the citizens of India that improves a nation’s economy and elevates its residents’ standard of living. The Constitution of India permits the Central and State Governments to impose taxes on its nationals. If an individual fails to make a tax payment, certain penalties will be applicable under the pre-specified laws.
There are two major types of taxes, namely direct and indirect taxes. Further, these categories are sub-divided into other types. The provisions of different acts under the Income Tax Act regulate and govern such taxes.
A direct tax refers to a tax that a legal entity or an individual pays to the government directly. The CBDT (Central Board of Direct Taxes) oversees these taxes. You cannot transfer direct taxes to any other legal entity or individual.
The following are the different types of direct taxes:
The government directly imposes this tax on the profits or yearly income. If you earn any sort of income, you are liable to pay this tax. There exist different income tax rates for different ranges of income and ages. For people over 80 years, Rs. 5 lakh is the tax exemption ceiling per annum. For people in the age range between 60 and 80 years, Rs. 3 lakh is the exemption limit. For people below the age of 60 years, Rs. 2.5 lakh is the exemption limit.
Besides, legal entities will be paying taxes as well. These comprise local authorities, local firms, companies, AOP (Association of Persons), BOI (Body of Individuals), HUF (Hindu Undivided Family) and artificial juridical persons.
Every company has to pay the income tax, popularly called corporate tax. This depends on the various tax brackets that the income comes under. Following are different sub-categories of these taxes:
This government has abolished the DDT with the introduction of the Finance Act, 2020.
Such taxes apply to the multiple perks and benefits that employees receive from their companies. The purposes of these perks and benefits, whether they’re personal or official, have to be specified.
STT is applicable to securities trading and the stock market. The government imposes this tax on the market price of securities and shares bought and sold on the Indian stock exchanges.
The tax department levies these taxes on property sales or money obtained through investments. It can be from long-term or short-term capital gains of investments. All exchanges in kind (weighted against their values) are applicable under this.
The government also levies taxes on products and services, namely indirect taxes. A seller of a product or service collects such taxes. This tax gets added to a service’s or product’s price. Hence, it raises the price of a service or product. At present, there’s only one type of indirect tax, that is, Goods and Service Tax (GST).
The IT Department levies this consumption tax on the regular supply of goods and services in the country. Every production procedure stage of any value-added services or goods will be subject to GST imposition. Such taxes get refunded to the dealers engaged in the production procedure (not the ultimate customer).
Services or products that aren’t taxable under this indirect tax are petroleum products, alcoholic drinks and electricity. The State Government as well as Central Government, imposes GST in the form of SGST and CGST for intra-state goods and services. In addition, the Central Government will levy an Integrated GST (IGST) for the supply of inter-state services and goods.
Apart from direct and indirect taxes, there are ‘Other Taxes’ as well that serve special agendas. Let’s know about them!
Other taxes generate minor revenues and comprise cess taxes. Following are the sub-divisions of these taxes:
You can avail the following advantages if you pay income tax on time:
It is beneficial, mandatory and efficient for earning individuals (earnings that exceed the tax exemption ceiling) to file income tax returns every year. The tax payment is essential for welfare activities, upliftment of the society, infrastructure betterment and overall development of the country.
Ans: The government may impose various penalties on a legal entity or an individual who evades income taxes. This penalty is based on the type of tax that is not paid. That means in case of a penalty, the amount of tax coupled with an interest or fine is applicable.
Ans: If you are an Indian resident below the age of 60 years, you will have to pay taxes if your annual income is above Rs. 2.5 lakh. If your age is above 60 years and below 80 years, you will be liable to pay taxes if your income exceeds Rs. 3 lakh. In the case of individuals above 80 years, if the income exceeds Rs. 5 lakh, taxations are applicable.
Ans: First, you need to calculate your gross income, which would include your earnings from house property, capital gains, salary, other sources and profits from business or profession. Next, subtract deductions under Sections 80C to 80U to get the net taxable income. Finally, calculate the income tax as per the tax slab you fall into.
Ans: The State Governments fulfil their financial requirements with sales tax. These taxes are levied on the purchase and sale of goods inside a specific state. All dealers require paying this tax after the sale of products. It is applicable even if there are no tax implications as per the state’s tax laws. Sales tax varies from state to state.
Ans: You can claim tax exemptions while filing your income tax returns every year. The Income Tax Department will verify and examine your details before approving. Tax exemptions are essential options to help you save on your income tax.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
|Section 112A||Section 50||Section 245|
|Section 80QQB||Section 32AD||Section 250|
|Section 35D||Section 143 (1a)||Section 115BAB|
|Section 143||Section 79||Section 140A|
|Section 17(2)||Section 3||Section 94A|
|Section 147||Section 80||Section 40A|
|Section 48||Section 115AD||Section 14A|
|Section 45||Section 285BA||Section 6|
|Section 36||Section 87A||Section 80GGA|
|Section 244A||Section 234E||Section 28|
|Section 197||Sectio 548||Section 194J(1)(ba)|
|Section 145A||Section 80P||Section 92CD|
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