Tax is a fixed amount of money collected by the State or Central Government to promote its economic growth. These are considered an obligatory contribution to the state revenue and are vital to boost its economic growth. The taxes paid to fill the Government’s treasure chest are further utilised in good faith for its populace through many services, including services related to supporting the weaker sections of society, relief funds, education, public services, basic amenities, and more. Indian Constitution has granted authority to the ruling Government to collect taxes from the citizens of the country. Different kinds of taxes are imposed on the citizens and practised by Local, State, and Centre governments. The laws passed by either one of India’s Parliament or the State Legislature back and support the taxes laws, rates, and regulations.
Different Types of Taxes
Primarily the taxes are divided into two subcategories – Direct Tax and Indirect Tax. Apart from these types of taxation subcategories, other taxes or levies are imposed by the Indian Government for general factor purposes. Some of these are Krishi Kalyan Cess Tax, Infrastructure Cess Tax, and Swachh Bharat Cess Tax.
The taxes that are paid directly to the Indian Government are known as the Direct Tax. An individual or citizen is liable to pay the Direct Taxes. For that reason, these laws can’t be passed on to another unit or individual. Central Board of Direct Taxes (CBDT) and falls under the Department of Revenue governs Direct Taxes. There are different types of Direct Taxes that includes:
· Income Tax: The taxes imposed on annual income generated by an individual, firm, or business are called Income Tax. These taxes came into existence with the Income Tax Act of 1961. Income tax is calculated as per the Income Tax Act, 1961, and is directly paid to the Central Government annually. The Tax Act of 1961 set the income tax rules and applied to income generated by the profit-based business, property owners and dealers, salaried professionals falling under the tax deduction bracket, investments done above the relaxed limit, or companies. Based on the different income tax slabs, individuals or companies must pay the taxes annually as per the Government’s rates.
· Gift Tax: The taxes imposed on gifts or presents of any form received by individuals or units are called Gift Tax. These taxes came into existence in 1958., If any individual receives gifts of any kind – cash or commodity, the individual must pay 30% of the gift’s amount to the Government. Later there were amendments done in this act in which the gifts received from family, blood relations, and close kins don’t fall under the Gift Tax slab. As per the revised Gift Tax, if any individual receives gifts in the form of cash or commodity exceeding the value of 50,000 INR through a non-related person or unit, they are entitled to pay the Gift Tax to the Government.
· Wealth Tax: The taxes imposed on individuals, Hindu Unified Family (HUF), or businesses when the net wealth is more than a set slab are called Wealth Tax. These taxes came into existence in 1951. According to the tax act, if the net wealth exceeds 30,00,000 INR, then 1% of the exceeded amount will be payable as a Wealth Tax. Later there were amendments done to this act in 2015. As per the revised Wealth Tax, if an individual has a net wealth or generates an annual income of more than 1,00,00,000 INR, they are liable to pay a surcharge of 12%. Wealth Tax is also pertinent to the companies whose turnover is more than 10,00,00,000 INR.
· Capital Gains Tax: The taxes levied if you have made profit gains after selling a property or sale of an investment are called Capital Gains Tax. Long Term Capital Gains Tax and Short Term Capital Gains Tax are subparts of the Capital Gains Tax. The Long Term Capital Gains Tax is pertinent only if the sale of an investment or property made with an investment holding period more than 36 months. The Short Term Capital Gains Tax is levied if the sale of an asset or property made with the investment holding period lesser than 36 months.
· Securities Transaction Tax: The taxes levied when you have made profit gains after selling or purchasing shares in the stock market are called Securities Transaction Tax.
· Corporate Tax: The taxes levied on domestic and foreign companies on the annual income or turnover made during their year tenure in India are called Corporate Tax. According to the Tax Act, all the firms doing business in India and earning a profit can pay tax if they fall under the predefined corporate tax slab. Also, the corporate tax structure for multinational firms is unalike from national firms.
The taxes imposed on goods and services but not levied on profit, take-home pay, or an individual’s revenue or an entity are known as the Indirect Tax. These types of taxes are transferable and transferred from one individual to the other. There are different types of Indirect Taxes that includes:
· Sales Tax: The taxes levied upon selling goods or commodities are called Sales Tax. As per the tax, all the sold goods or products, either manufactured locally or imported come under Sales Tax. Here, the Government indirectly imposes the Sales Tax on buyers or consumers. They put some Sales Tax percentage to the seller of the product, and as we advance, the seller includes that specified Sales Tax to the buyers.The Sales Tax slab and the percentage differ from state to state, and hence in some states, Sales Tax is considered one of the most significant revenues collection sources.
· Service Tax: The taxes levied on the services provided by companies are called Service Tax. Service Taxes are imposed on companies’ services monthly or quarterly; all the service providers are liable to pay the Service Tax once they are paid for their services.
· Goods and Service Tax: The taxes levied on every step of the supply chain in the consumption cycle are called Goods and Services Tax. The Goods and Services taxes are widely known as GST, and it came into existence and was imposed in 2017.
· Value Added Tax (VAT): The taxes levied on products apart from the essential commodities like food and essential medicines are Value Added Tax or VAT. On every value-added stage in the supply chain, the VAT tax act comes into existence. This tax is governed and controlled by the State Government.
· Customs Duty: The taxes levied on goods or products imported from a foreign country to India are called Customs Duty tax. Under this tax, if you have purchased foreign goods that cross the threshold set under the Customs Duty Slab tax rate, you have to pay predefined tax to the Indian Government.
· Toll Tax: The taxes levied on the citizen travelling between states, on bridges, are called Toll Tax. Toll Tax is collected, managed, and governed either by the State Governments or Central Governments to be used in several projects such as road construction and maintenance.
ITR: Different Slabs, Exemptions, Eligibility & more.
What is the Difference Between Commerce and Business?
How To Pay Income Tax Online? Step-By-Step Guide.
Why is RBI Called Bank of Banks?
Q. What is TDS?
Ans: Tax Deducted at Source is commonly known as TDS, which is simply the most common method to deduct income tax from the citizens’ annual income.
Q. How can we calculate sales tax implied by the Government?
Ans: Sales Tax is simply the product of the cost of the commodity and the sales tax rate. You can calculate the Sales Tax with the formula—
Total Sales Tax = Cost of Item x Sales Tax Rate