Taxation in India | Types of Taxes | Tax Structure in India
Every year if the month of March comes then the Companies, Individuals, Central/ State Government Employees, etc. will be thinking that Should I have to Pay Tax? Many People may not pay tax by producing a variety of reasons. Every Person or Individual in India has to pay tax. First of all know What Tax means.
What is Tax?
Tax is a charge, or it is a specified fee which is levied by the Central Government or State Government. This Fund or Charge is used to boost or increase the Country’s economy and Welfare. Types of Tax and Tax Rules in India are constituted by the Ministry of Finance’s Department of Revenue, Government of India. Anyway, we must note the point that Government cannot impose any tax on its own wish. Check the types of taxes in India that are given below.
Types of Taxes in India – Taxation in India
A fee charged or levied by the Government on a product, income, or activity. The purpose of taxation is to finance government expenditure. These are various types of Taxes in India.
- Direct Tax.
- Indirect Tax.
- Other Taxes.
Direct Taxes are directly paid or imposed to the Government of India. A Government body and a part of Department of Revenue named as CBDT (Central Board of Direct Taxes) looks over these Direct Taxes. Here are the types of Direct Taxes in India.
- Income Tax
- Withholding Tax
- Payroll Tax
- Capital Gains Tax.
- Securities Transaction Tax.
- Wealth Tax.
- Corporate Tax.
- Fringe Benefit Tax.
- Dividend Distribution Tax.
Income Tax is imposed on anybody who earns income in India, whether they are resident or non-resident. Every individual person, HUF (Hindu Undivided Family), AOP (Association of Persons), BOI (Body of Individuals), corporate firms, companies, local authorities and all other artificial juridical persons who/which have earned income are required to pay Income tax in India. It is charged on the Total Income of a Previous Year at the rates prescribed for the Assessment Year. For more information about click here for information about Income Tax in India and Income Tax Slab rates.
- Payroll Tax: Payroll is nothing but a paysheet that includes the sum of all financial records of Salary of an employee such as wages, bonuses, and deductions. Payroll Tax is one type of tax which is levied by Government of India on the payroll of an employer. In this tax, all it includes are the forms of remuneration paid to his/her employees by the employer.
- Withholding Tax: A withholding tax is also called as retention tax. It is a government requirement for the payer to withhold or deduct tax from the payment under specified head such as commission, rent, professional services, salary, contract, etc. and pay that tax to the government. In short, Withholding Tax is Income tax withheld by the payers from payees’ wages and paid directly to the government.
Capital Gains Tax
Under Income Tax Act 1961, any Income derived from a Capital asset that is movable or immovable is chargeable to tax under the head ‘Income from Capital Gains’. Simply, any Profit/ Gain derived from Sale or transfer the Capital Asset is taxable under this head. A capital gain arises only when a ‘capital asset’ is sold/ transferred. If the asset that is transferred is not a capital asset, then it is not covered under the head ‘Capital Gains’. For more information click here on Capital Gains Tax.
Wealth Tax is chargeable with respect to ‘Net Wealth’ of the corresponding ‘Valuation Date’ of Individual/HUF and company at the rate of 1% of the amount by which the net wealth exceeds 30 lakhs rupees. No Wealth Tax is chargeable in respect of net wealth of any Cooperative society any Social Club, any Political Party. Wealth Tax will not be applicable from the assessment year 2016-2017 onwards.
Businessmen who earned profits in a particular period of time is liable to pay Corporate Tax. Corporation Tax is levied on the revenues of a company after making deductions such as Cost of goods sold (COGS), depreciation, and Selling general and administrative expenses (SG & A). The rates varies for different levels of profits earned by business houses. You can assume Corporate Taxes as income tax for the income earned by businesses. Different rules are there in different countries that apply to Taxing of income.
- Fringe Benefit Tax: Fringe benefits are paid by the employer to their employee for their performance of services in the form of pay other than money. These fringe benefits are taxable except some fringe benefits that are exempted from taxation as per the tax law. This ‘Income-tax on fringe benefits’ is a new tax introduced by Finance Act 2005, with effect from 01-04-2006. The Income tax on fringe benefits shall be levied at the rate of 30%.
- Dividend Distribution Tax: When a company announces dividends, the amount that is paid as a dividend is liable for the tax. This tax is known as the DDT (Dividend Distribution Tax). DDT is levied on companies by the Indian Government according to the dividend paid to the investors. This is only applicable to those payments that are made to investors by companies in the form of dividends. DDT is payable by the company that is announcing the dividends. For more information click here on Dividend Distribution Tax.
Indirect Taxes are such type of taxes where incidence and impact fall on two different persons. Indirect Taxes are regressive in Nature. Purchase/ Sale/ Manufacture of goods and/ or rendering services. This is levied and collected from the consumer but paid/ deposited to the exchequer by the Dealer/ Assessee. Indirect Tax is collected at the time of sale or purchases or rendering of Services. These are types of Indirect Taxes.
- Excise Duty.
- Customs Duty.
- Service Tax.
- Sales Tax.
- Central Sales Tax (CST).
- Value Added Tax (VAT).
- Goods and Services Tax (GST).
Excise duty is a type of indirect tax levied on production or manufacture of excisable goods in India. The Excise Duty is collected by Central Board of Excise and Customs (CBEC). In Union Budget of India 2016, an excise duty of 1% without input tax credit and 12.5% with input tax credit has been imposed on the articles of jewellery except silver jewellery. Excise Duty on alcoholic preparations, alcohol, and narcotic substances is collected by the State Govt and is called “State Excise Duty”. The Excise Duty on rest of goods is called “Central Excise Duty” and is collected in terms of Section 3 of the CEA (Central Excise Act), 1944.
Customs duty in India is defined under the Customs Act, 1962. All matters related to Customs Duty fall under the CBEC (Central Board of Excise & Customs). Central Board of Excise & Customs has various divisions that take care of the field work including Customs, Commissionerate of Customs, etc. Some of the definitions under Customs Act, 1962 is given in this Customs Duty Overview.
Service Tax is a tax in the provision of services. Service Tax is a tax on the ‘economic activity’ which results in value addition. The service tax has been enforced on all services other than those specified in the negative list. It is a tax imposed on the transaction of certain services specified by the Central Government under the Finance Act, 1994. Service Tax is a destination based consumption tax leviable in services provided within the country
Sales tax is a Consumption Tax levied by the government on the sale of goods and Services. In other words, Sales Tax is an additional amount of money paid based on the percentage (%) of the selling price of goods that are purchased from a good or services. Sales Tax is an indirect tax charged at the point of sale of certain taxable goods and services. A conventional sales tax is charged at the point of sale, collected by the retailer and passed on to the government.
Central Sales Tax
So many people have a question that What is Central Sales Tax. To those Assessee’s here we are providing Central Sales Tax in India is a form of Indirect Tax Imposed on the “Sale of Goods” by Central Government of India. The CST Tax is applicable only in the case of “Inter-State Sales”made within the state or import/ export of sales.
Value Added Tax
VAT is a kind of tax which levied on the sale of goods and services when these goods are ultimately sold to the consumer. VAT Tax is an integral part of the GDP (Gross Domestic Product) of any country. VAT is imposed on intrastate sale that is the sale of goods within the state. VAT is a tax on value addition on the goods.
Goods and Service Tax
GST is an Indirect Tax that is charged on Sale, Consumption, and manufacture of Goods and Services at the National Level. Goods and Service Tax was amended by the Constitution of India and was introduced in Lok Sabha in December 2014, by the Constitution (122nd Amendment) Bill, 2014. GST Tax was introduced to boost the economic growth and to reduce the overall tax burden on goods in the country. It is estimated that GST will almost reduce a tax burden of 25% to 30%. Goods and Service Tax is a single tax chargeable at every point of sale or provision of service. By introduction of GST into tax system no need of paying VAT, Service Tax on the same product. If the law is passed by the parliament GST Tax may come into force from April 2016.
Other types of Taxes India are
- Professional Tax.
- Municipal Tax.
- Entertainment Tax.
- Stamp Duty, Registration Fees, Transfer Tax.
- Education Cess.
- Gift Tax.
- Swachh Bharat Cess.
- Krishi Kalyan Cess.
- Entry Tax.
- Infrastructure Cess.
- Property Tax.
- Luxury Tax
The State Government levies the Professional Tax on income from profession or employment. Individual earning an income from salary or anyone carrying out a profession such as a lawyer, doctor chartered accountant, etc. are required to pay this professional tax. Different states in India have different rates and methods to collect Professional Tax. Click here for Slab Rates of Professional Tax.
Gift tax in India is supervised by the Gift Tax Act, which comes into force on 1st April 1958. This Tax Act extends to all parts of India except the State of Jammu & Kashmir. Gift Tax is the tax on property or money that one living person gives to another. Most of the gifts received are not subject to taxation because of exemptions are provided in Indian Income tax laws.
Swachh Bharat Cess
Swachh Bharat Cess shall be levied on all the taxable services at the rate of 0.5% in accordance with the provisions of Chapter VI of the Finance Act, 2015. Swachh Bharat Cess is a new levy, which was not in existence earlier. Hence, as per the Rule 5 of the Point of Taxation Rules, 2011 would be applicable in this case. Therefore, in cases where payment has been received, and invoice is raised before the service becomes taxable, i.e. before 15th November 2015, there is no liability of Swachh Bharat Cess.
Krishi Kalyan Cess
In the Union Budget 2016, Arun Jaitley has proposed a new cess which will come into effect on 1st June 2016, @ 0.5% on all services, which are presently accountable to service tax. It will translate into a service tax of 50 paise only on every one hundred rupees worth of taxable services. Krishi Kalyan Cess of 0.5% to be levied over on Service Tax and the Swachh Bharat Cess.
In India, Entertainment tax is levied on every financial transaction that is related to feature films getting a wide release. This tax may incur on Movie tickets, large private festival celebrations, and large commercial shows. These are reduced from gross collections. The amount after deducting the Entertainment Tax is known as a net value. Entertainment is included in the List 2 of the 7th Schedule of the Constitution of India. It is entirely reserved as a revenue source for the state governments.
Stamp Duty, Registration Fees, Transfer Tax
Stamp Duty is a kind of Tax levied by the government on the legal recognition of certain documents. This Stamp Duty should be paid in full amount on stipulated time. The Stamp Duty is payable/ Collected under Section 3 of Indian Stamp Act, 1899. Stamp duty is also a kind of property tax on which a home buyer needs to pay this on the sale of the agreement. After paying the Stamp Duty, the documents needs to be registered under the Registration Act, 1908 within 4 months from the date of execution. The Registration charges are over and above the stamp duty. The Registration charges are levied at the rate of 1% of Total Property value/ Market value/ Agreement value whichever is higher.
Entry Tax is a tax charged or levied or imposed on goods purchased or brought within the State or from outside the State. Entry Tax is charged separately by the State Governments of India. This Entry Tax Act was introduced on 01/09/2000. Entry Tax Rates are applicable as per State Government Rules. This Tax is charged on the items which are notified by the State and these items notified may vary for State to State. Click here for more about Entry Tax.
Education Cess is divided into 2 parts the first one is Primary Education Cess and the Second is Secondary and Higher Education Cess. This Education Cess is levied or charged by Government of India for the improving the standards of Education in Public Schools. This Education Cess is levied as a part of Income Tax by the Income Tax Department. Education Cess was implemented in the year 2004. In order to provide the financial support to the Higher Education, the government introduced higher education cess in 2007.
A property tax is a charge on property that the owner is needed to pay. The Property tax is imposed by the governing authority of the jurisdiction in which the property is situated. For income tax basis in India, property is considered as a source of revenue. Hence, the tax is levied on that property. The Properties include flat, shop, building, etc. as well as the land belonging to the building. Under the Income Tax Act India, incomes from the properties are counted as one of the heads of income. The amount of tax imposed is calculated on the value of the property being taxed.
The Tax which is levied or charged by the local authority named as municipality of the Country is known as Municipal Tax. This local taxes should be paid to the Municipal Corporation by the assessee if he owes a house property. Municipal Taxes are usually levied in India in the form of Property Taxes. This Tax is collected for sewer maintenance, civic services, etc. So, every Individual who is having his own house property has to pay this municipal to the local Municipal bodies.
Union Government imposed Infrastructure Cess on the production of vehicles. Infrastructure Cess is defined as a duty of excise by Finance Bill which is levied and collected by the Union Government for financing infrastructure projects. It is levied at the rate of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity (i.e. not exceeding 4 metres in length and engine capacity of up to 1500cc) and 4% on other higher engine capacity vehicles and SUVs (Sports Utility Vehicles). Through this Infrastructure Cess, the government has projected that it would collect an aggregate of Rs. 3,000 crore in the FY (financial year) 2016-17. This Infrastructure Cess has come into effect from 1st March 2016.his information.