Tax is defined as a charge levied on individuals and organizations, by a Governing authority, to raise funds for development and governing. Taxes are the main source of income for the government. In India, major taxes are levied and collected by the authorities under the Central and State Governments. The local Municipalities (third level governing bodies) are also entitled to collect certain taxes in India.
There are two important classifications of taxes in India; Direct Tax and Indirect Tax. Following are the different Direct Taxes in India:
1) Income Tax: Income Tax is a tax levied on the income earned by individuals and organizations. Income Tax is levied and collected by the Income Tax Department, functioning under the Department of Revenue of the Ministry of Finance. Income Tax increases with increase in income. In addition to Income Tax, individuals are supposed to pay Cess and Surcharge (if applicable).
Cess is a tax levied on the tax itself, Cess is levied to raise funds for a pre-defined cause. Surcharge is a tax levied on the tax paid by the individuals earning more than Rs 50 Lakhs. Funds raised by Surcharge can be utilized for any purpose.
2) Capital Gains Tax: Capital Gain is defined as the gains made by the property holders when they sell their properties or investors who make profits when selling shares. For example; if a property is bought at Rs 25 Lakhs and sold at Rs 75 Lakhs, then you make a profit of Rs 50 Lakhs. Capital Gains Tax is applicable on Rs 50 Lakhs, the gain made on the property transaction. LTCG (Long Term Capital Gains) Tax is applicable at 20% with the indexation benefit.
3) Securities Transaction Tax, STT: Securities Transaction Tax is a tax levied on the individuals who sell shares, derivatives and equity oriented mutual funds. STT is charged when the actual transaction happens. Securities Transaction Tax is governed by Securities Transaction Tax Act.
4) Professional Tax: All individuals earning income either from salary or through practice of profession is required to pay a Tax called Professional Tax. Professional Tax is levied and collected by the State Government.
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SEE ALSO: How To Reduce Income Tax In India?
1) Corporate Tax: Corporate Tax is a Tax levied on the profits made by the organization/companies operating in India. Both private and public companies that are registered in India under the Companies Act 1956, are liable to pay corporate tax. Corporate Tax varies across companies, depending on the profits made. Foreign companies pay higher Corporate Tax vis-a-vis domestic companies.
2) Service Tax: Businesses like software, restaurant, travel agencies and so on, charge an extra fee called ‘service charge’ to offer services. This is because these businesses are charged a tax called Service Tax. Service Tax has been replaced by GST.
3) Value Added Tax: Value added tax or VAT was a Tax, which was imposed on goods and services at each stage of production, starting from raw materials to the final product. GST has replaced VAT.
4) Customs Duty: This is a Tax levied on the items imported. Customs Duty is levied at airports and ports. The purpose of Customs Duty is to protect country's economy, residents, jobs, and environment, by controlling the flow of goods, especially the restrictive and prohibited goods, into and out of the country.
5) Central Excise Tax: Central Excise or Excise Tax (sometimes called an excise duty) is a type of tax, charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of goods within the country.
6) Anti-Dumping Duty: Anti-dumping duty is a Tax that government imposes on foreign imports that are priced below the fair market value. Dumping is a process where a company exports a product at a price lower than the cost of manufacture.
7) Dividend Distribution Tax (DDT): Dividend is distributed to shareholders out of the profits of the Company. Dividend Distribution is subjected to Taxation in the hands of the Company.
8) Municipal Tax: Municipal Tax, also called Property Tax, is a tax levied by the local municipality, the third level governing authority, on the properties owned by the individuals. The funds raised by Municipal Tax are used for development and governing.
9) Entertainment Tax: Entertainment Tax was levied on entertainment like movie tickets, major commercial shows and big private festivals. Entertainment Tax was levied and collected by the State Governments. GST has replaced Entertainment Tax.
10) Education Cess: Cess is a tax levied on the tax itself. In India, all taxpayers pay 4% Cess. Out of the 4%, 3% is utilized for education purposes.
11) Gift Tax: Gift Tax is a tax levied on the items/properties received as gifts. Gift Tax is levied on the receiver of the gift. Gift Tax is levied on all gifts worth Rs 50,000 and above.
12) Wealth Tax: Wealth Tax is levied at 1% on individuals net worth exceeding Rs 30 Lakhs a year. No cess or surcharge is levied.
13) Goods and Service Tax (GST): GST stands for Goods and Services Tax, levied by the Government. GST replaced all the indirect taxes. The main reason behind introducing GST was to improve the economy of the nation. GST is divided into three parts; the Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST) and Inter State Goods and Services Tax (IGST).
The CGST covers all the Central indirect taxes while SGST will cover all the State indirect taxes. The CGST is levied by the Central Government while the SGST is levied by the State Government. In the case of interstate transactions, IGST will be levied by the Central Government.
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