ALL YOU NEED TO KNOW ABOUT THE TYPES OF TAXES IN INDIA

WHAT IS TAX?

Tax is a form of financial fees levied on individuals and business entities by the central as well as the state governments. It is a form of the earnings of governments through which they spend money on infrastructure and other facilities provided to the public by them. Here, we will get to know about the various types of taxes.

      Basically, there are two broad classification of taxes in India : Direct Tax and Indirect Tax. There are also minor cess taxes that fall into other categories.

DIRECT TAX

 These are the taxes that are paid directly by the individuals or legal entity to the central government. Central Board of Direct Taxes (CBDT) under the Department of Revenue is responsible for the governance of this tax. Since direct taxes are paid directly by the individual and legal entity, it cannot be transferred to any other individual or legal entity. Various types of direct taxes are as follows:

1. 1. Income Tax
2. 2. Capital Gains Tax
3. 3. Securities Transaction Tax
4. 4. Corporate Tax

1. INCOME TAX

Income Tax is levied on annual income of the individual. When it comes to business entities, income tax is levied on the profits earned by them. Different tax slabs are available for different income amounts. Some of the legal entities that are liable to pay income tax includes:

• Artificial Judiciary Persons
• Hindu Undivided Family (HUF)
• Body Of Individuals (BOI)
• Association Of Persons (AOP)
• Companies
• Local firms
• Local authorities

2. CAPITAL GAINS TAX

Capital Gains Tax is levied on the sale of the property or money received through an investment.

It could be either short term or long term capital gains from an investment. Short term capital gains is levied on the investments made for the period of less than 36 months and long term capital gains is for those investments which are made for more than 36 months. 

3. SECURITIES TRANSACTION TAX

This tax is levied on stock market and securities transactions. It is levied on the price of the share as well as securities traded on stock exchanges.

4. CORPORATE TAX

Basically, it is an income tax levied on a company. There are various types of corporate tax:

(a) DIVIDEND DISTRIBUTION TAX

This tax is levied on dividends that companies pay to investors. It applies to gross or net income received by investors from an investment.

(b) FRINGE BENEFIT TAX (FBT)

This tax was levied on fringe benefits that an employee receives from the company. It included expenses related to accommodation, transportation, leave travel allowance, entertainment, retirement fund contribution by the employees, Employee Stock Ownership Plan (ESOP), etc. FBT came into effect from April 1, 2005 but later it was discontinued by the then Union Finance Minister Pranab Mukherjee while announcing the Union Budget in 2009. 

(c) MINIMUM ALTERNATIVE TAX (MAT)

It is a means for the IT department to get the companies pay a minimum tax. This tax came into existence after the introduction of Section 115JA of the IT Act. It is interesting to note that the power and infrastructure sectors have been exempted from paying the minimum alternate tax.

5. GIFT TAX

It was introduced in 1958 through Gift Tax Act. Gifts worth of more than rupees 50000 received other than family members such as spouse, parents and blood relatives are liable to be taxed.

INDIRECT TAX

Indirect Tax is levied on products and services. The tax is collected by seller or service provider. The indirect tax is added to the price of product or service provided, hence increasing the price of the product or service provided.

GST

It is a consumption tax levied on the supply of goods and services. Every step of production process of goods is subject to the imposition of GST. Impostion of GST has eliminated various taxes, namely

• VAT
• Octroi
• Customs Duty
• Central Value Added Tax (CENVAT)
• Customs and Excise Taxes

Some of the products such as electricity, alcohols and petroleum products have been exempted and are taxed as per the previous tax regimes by individual state governments.

OTHER TAXES

1. PROPERTY TAX

It is also known as Real Estate Tax or Municipal Tax. This tax is levied on residential and commercial property owners by municipal bodies based in each city.

2. PROFESSIONAL TAX

This tax is levied on those who practices professions or earn a salaried income such as lawyers, CA, doctors, engineers, etc. This tax differs from state to state and not all states levy this tax.

3. ENTERTAINMENT TAX

This tax is levied on gross collections from the earnings from television series, movies, exhibitions, etc.

4. REGISTRATION FEES, STAMP DUTY, TRANSFER TAX

This tax is collected in addition to property tax at the time of purchasing a property.

5. EDUCATION CESS

This tax is levied to fund central educational programs.

6. ENTRY TAX

Entry tax is levied on those goods that enter a state. This tax is applicable in DELHI, ASSAM, GUJARAT, MP, etc..

7. ROAD TAX AND TOLL TAX

This tax is levied for the maintenance of roads and toll infrastructure.