Tax is mandatory fee charged upon individual or corporations by State and Central Government. However, it also builds economy of country by various public expenses. Taxes are broadly divided into two types such as Direct and Indirect Taxes. Would you like to know exactly what taxes end up paying in our day to day lives? So here goes!
What is Direct Tax?
It is tax charge directly on taxpayer who pays it to government and cannot pass it on to someone else. These types of taxes are directly paid to government of India. It is tax applied on individuals and organizations directly by government e.g. income tax, corporation tax, wealth tax etc.
Types of direct Taxes in India
There are several types of direct taxes available in Indian pay. Some of important direct taxes charged in India are mentioned below. Also See five things to know about direct taxes. Read Modi working on simpler rules to lift direct tax revenue
Income Tax is paid by an individual based on taxable income in given financial year. Under Income Tax Act, term individual also includes Hindu Undivided Families (HUFs), Co-operative Societies, Trusts and any artificial judicial person. It is imposed on an individual who falls under different tax brackets based on earning or revenue and they have to file income tax returns every year.
Corporation Tax is paid by Companies and Businesses operating in India on income earned worldwide in given financial year. These taxes are filed annual on income of corporate system in our country. In India, taxation companies are divided in to international and domestic companies. Similarly, Corporation tax is levied on firms on income they earned.
Wealth tax is applicable on individuals, HUFs or companies. Wealth tax is charged on value of property that person possesses and same property will be taxed every year on its current market value. It is taxed at rate of 1% of net wealth exceeding Rs. 30 Lakhs. Also it charged whether property in earning an income or not.
Capital Gains Tax
Profits made on sale of property are taxable under capital gains tax. Here, property includes stocks, bonds, residential property, metals etc. It is taxed at two different rates based on how long property was owned by taxpayer like short term capital and long term capital tax.
What is Indirect Tax?
Indirect Taxes are applied on manufacture or sale of goods and services. And it is not charged on income, profit or revenue of an individual. Income tax is paid by consumers. In other sense we can say it is paid by seller indirectly. We can take service tax as an example. It can be shifted from one taxpayer to another.
On other hand, indirect taxes can be defined as those taxes that are collected by an intermediary during purchase of goods and services. Let’s discuss few indirect taxes that were charged in India. Also read Goods and Service tax in India 2017: Things to know about GST tax India 2017
Sales Tax is charged on sale of movable goods. It is collected by central government in case of inter-state sales (CST) and by state government for intra-state sale (VAT). But taxation rates vary depends on product type.
Service Tax is applicable on all services provided in India except negative list of services that are exempt. It is paid by service provider to government who collects from user by service provider at time of provision of such service. On other hand, it charged on gross amount charged by service provider on recipient.
Excise Duty is applicable on manufacture of goods sold in India. Once goods are manufactured, company paid directly by Central Government. This tax was payable by firm who then shift tax burden to retailers and wholesalers.
GST Newly implemented Indirect Tax
Good and Service tax is important tax regime in India and also latest indirect tax introduced in Indian constitution. This tax scheme will count all other indirect taxes prevailing in nation. Various taxes that were mandatory earlier are now outdated.
As there are many different types of indirect taxes levied on expense incurred by buyer, now government intends to merge all these forms of direct taxes and levy common indirect tax by name of GST. This scheme has been introduced to make shift in Indian economy to reduce fall of tax duties in the market
There are various forms of GST which have been introduced below
SGST (State GST) – it is handled by state government in which all taxes collected under state provision will come under SGST
CGST (Centre GST) – CGST is central GST which will collected by central government on account of every transaction having an interstate.
IGST (Integrated GST) – This GST will be charged whenever transaction occurs between two states with share of state and centre with specified proportion.