When you pay taxes, the pool of money collected, is used by the government for meeting running expenses and contributing towards the growth of the nation. These funds are allocated to various sectors like infrastructure, education, defence etc. and help in the development of our country in terms of building infrastructure like laying roads, medicare, buying arms and ammunition etc. All the taxes levied by the government are classified either as Direct taxes or Indirect Taxes.
It is a tax imposed by the Government on any individual who earns income in India whether he/she is resident or non-resident in this country. Income earned in 12 months contained in the period from 1st April to 31st March (commonly called Financial Year [FY]) is taken into account for purposes of calculating Income Tax. The tax paid by an individual depends on his/her annual income. Following is the tax slab for paying income tax for FY 2014-15 (AY 2015-16):
Tax Slab for FY 2014-15 (AY 2015-16) for Resident Indian below 60 years of age
3. Capital Gains Tax:
If you sell any capital asset like property, shares, gold, debentures, mutual funds etc. at a profit, you are liable to pay capital gains tax on it. The capital gains tax rate depends on the holding time of an asset. The tax payer is liable to pay Long Term Capital Gain (LTCG) at the rate of 20% if he holds an asset for more than 3 years before selling (except a few like share, securities etc. where holding time required is 12 months).
Any gains on short-term capital asset (where holding time is less than 3 years/1 year) are taxed as regular income i.e. they are added to your total annual income and taxed as per tax slab applicable in your case. After including short-term capital gains to your total taxable income, if you fall in 30% tax bracket, it means that you are required to pay tax at the rate of 30% for all your taxable income including income from short-term capital gains.
If you hold shares of any Indian company and receive dividends, your dividend income is tax free. The dividend declared by Indian companies is not taxable in the hands of the shareholders because tax on distributed profits have already been borne by the company.
(a) Voluntary payment by persons into various designated Banks. For example Advance Tax and Self-Assessment Tax
(b) Taxes deducted at source (TDS) on your behalf from the payments receivable by you.
(c) Taxes collected at source (TCS) on your behalf at the time of spending. It is the constitutional obligation of every person earning income to compute his income and pay taxes correctly.
Indirect Taxes:
An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). It can be shifted by the taxpayer to someone else. This kind of tax increases the total amount you pay for buying a product. These taxes may be represented separately from the price of the item or may be shown together with the cost of the product itself. For example, the service tax paid on a food bill is shown separately, but tax paid on fuel is included in the final price of fuel. Service tax, Excise and customs duties are some examples of Indirect Taxes.
Some important indirect taxes imposed in India are as under:
A surcharge is an additional levy on the tax that an individual pays. For example, a surcharge of 10% of the Income Tax is applicable, where total taxable income is more than Rs. 1 crore. If the tax on an income of Rs 1 crore is Rs 30 lacs and a surcharge of 10 per cent is levied, the total tax liability on the taxpayer would be Rs 33 lacs.
Direct Taxes:
Direct taxes are those that are directly paid to the government by an individual. For example: Income Tax, Capital Gains tax etc. These taxes cannot be transferred to another person. Any individual who is earning income is liable and has complete responsibility to pay his taxes to the government. Non-payment of tax or evasion of tax can incur heavy penalty.Following are various types of direct taxes in India:
1. Income Tax:It is a tax imposed by the Government on any individual who earns income in India whether he/she is resident or non-resident in this country. Income earned in 12 months contained in the period from 1st April to 31st March (commonly called Financial Year [FY]) is taken into account for purposes of calculating Income Tax. The tax paid by an individual depends on his/her annual income. Following is the tax slab for paying income tax for FY 2014-15 (AY 2015-16):
Tax Slab for FY 2014-15 (AY 2015-16) for Resident Indian below 60 years of age
Income Range (Rs.)
|
Tax (% of income)
|
Up
to Rs. 2,50,000
|
Nil/
Tax Exempt
|
Rs.2,50,001
- Rs.5,00,000
|
10%
|
Rs.5,00,001
- Rs.10,00,000
|
20%
|
Above
Rs.10,00,000
|
30%
|
Tax Slab for FY 2014-15 (AY 2015-16) for Senior Citizen (aged above 60 years and below 80 years)
Income Range (Rs.)
|
Tax (% of income)
|
Up
to Rs. 3,00,000
|
Nil/
Tax Exempt
|
Rs.3,00,001
- Rs.5,00,000
|
10%
|
Rs.5,00,001
- Rs.10,00,000
|
20%
|
Above
Rs.10,00,000
|
30%
|
Tax Slab for FY 2014-15 (AY 2015-16) for very Senior Citizen (aged above 80 years)
Income Range (Rs.)
|
Tax (% of income)
|
Up
to Rs. 5,00,000
|
Nil/
Tax Exempt
|
Rs.5,00,001
- Rs.10,00,000
|
20%
|
Above
Rs.10,00,000
|
30%
|
2. Corporate tax:
Corporate tax is the tax paid by companies or firms on the incomes they earn.
In other words, when Companies pay taxes under the Income tax Act, it is called “Corporate tax”. These are taxes against profits earned by businesses during a given taxable period.
Company
|
Rate of income tax
|
Domestic
Company
|
30%
|
Foreign
Company:
|
|
If
total income consists of: (a) royalties received from Government or an Indian
concern in pursuance of an agreement made with the Government or the Indian
concern after the 31st day of March, 1961 but before the 1st day of April,
1976; or (b) fees for rendering technical services received from Government
or an Indian concern in pursuance of an agreement made with the Government or
the Indian concern after the 29th day of February, 1964 but before the 1st
day of April, 1976, and where such agreement has, in either case, been
approved by the Central Government.
|
50%
|
Other
Income
|
40%
|
Note: Apart from the above mentioned income tax rate, a surcharge and
education cess is also applicable depending on the net annual income of a
company.
If you sell any capital asset like property, shares, gold, debentures, mutual funds etc. at a profit, you are liable to pay capital gains tax on it. The capital gains tax rate depends on the holding time of an asset. The tax payer is liable to pay Long Term Capital Gain (LTCG) at the rate of 20% if he holds an asset for more than 3 years before selling (except a few like share, securities etc. where holding time required is 12 months).
Any gains on short-term capital asset (where holding time is less than 3 years/1 year) are taxed as regular income i.e. they are added to your total annual income and taxed as per tax slab applicable in your case. After including short-term capital gains to your total taxable income, if you fall in 30% tax bracket, it means that you are required to pay tax at the rate of 30% for all your taxable income including income from short-term capital gains.
4. Property Tax:
A property tax or a house tax, applied as per state rules, is paid on the value of the property. It is levied on the ownership of property and is usually accompanied by a number of service taxes, like water tax, lighting tax, sanitation tax etc. all using the same tax base. The owner of the property is liable to pay property tax every year. Vacant land is generally exempted from the assessment.5. Gift Tax:
Gift exceeding Rs 50,000 is taxable unless it is received from any person who is a relative or on occasion of marriage or under will or by inheritance or in observation of death of the payer. The gift value is added to your income under the head “income from other sources” and is taxable.6. Stamp Duty and Registration:
At the time of purchase of a property, you need to pay stamp duty and registration fees to the state government. Stamp Duty is a tax levied for the transaction performed by way of a document like Sale Deed, Conveyance Deed etc. The payment of proper Stamp duty on the transfer documents confers legality on them. Once the stamp duty is paid, the document has to be registered under the Indian Registration Act. The registration fee is paid over and above the stamp duty and vary in different states.7. Inheritance Tax:
An inheritance tax (also known as an estate tax or death duty) is a tax which arises on the death of an individual. It is a tax on the estate, or total value of the money and property, of a person who has died. India enforced estate duty from 1953 to 1985. Estate Duty Act, 1953 came into existence w.e.f. 15th October, 1953. Estate Duty on agricultural land was discontinued under the Estate Duty (Amendment) Act, 1984. The levy of Estate Duty in respect of property (other than agricultural land) passing on death occurring on or after 16th March, 1985, has also been abolished under the Estate Duty (Amendment) Act, 1985.8. Professional Tax:
Professional Tax is a part of income tax which is charged by some of the state governments in India. Individual earning an income from salary or any one practising a profession such as chartered accountant, lawyer, doctor etc. are required to pay this professional tax. This tax is levied by following states in India: Karnataka, West Bengal, Andhra Pradesh, Maharashtra, Tamil Nadu, Gujarat, and Madhya Pradesh. Although these states have different tax rates, maximum amount of Professional Tax that can be levied by any State is Rs. 2,500 only.9. Dividend Distribution Tax (DDT):
This is a type of direct corporate tax which is paid by domestic companies on any amount declared, distributed or paid by way of dividend to its shareholders. The dividend distribution tax is 15% and is the final tax in respect of dividend declared. The shareholders are not required to pay further tax on their dividend income.If you hold shares of any Indian company and receive dividends, your dividend income is tax free. The dividend declared by Indian companies is not taxable in the hands of the shareholders because tax on distributed profits have already been borne by the company.
10. Wealth Tax:
Wealth tax is a direct tax, which is charged on the net wealth of the assessee. It is a tax on the benefits derived from ownership of property. The tax is to be paid year after year on the same property on its market value, whether or not such property yields any income. Net wealth means all assets less loans taken to acquire those assets. Valuation date means 31st March of immediately preceding the assessment year. The net wealth so arrived at is charged to tax at the specified rates. Wealth tax is charged @ 1% of the amount by which the net wealth exceeds Rs. 15 Lakhs.How does the Government collect Income Tax?
Taxes are collected by three means:(a) Voluntary payment by persons into various designated Banks. For example Advance Tax and Self-Assessment Tax
(b) Taxes deducted at source (TDS) on your behalf from the payments receivable by you.
(c) Taxes collected at source (TCS) on your behalf at the time of spending. It is the constitutional obligation of every person earning income to compute his income and pay taxes correctly.
Indirect Taxes:
An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). It can be shifted by the taxpayer to someone else. This kind of tax increases the total amount you pay for buying a product. These taxes may be represented separately from the price of the item or may be shown together with the cost of the product itself. For example, the service tax paid on a food bill is shown separately, but tax paid on fuel is included in the final price of fuel. Service tax, Excise and customs duties are some examples of Indirect Taxes.
Some important indirect taxes imposed in India are as under:
11. Service Tax:
Service tax is a form of indirect tax applied on taxable services such as food and beverage, travel and recreation by the provider. The objective behind levying service tax is to reduce amount of taxation on manufacturing and trade without forcing the government to compromise on the revenue needs.12. Sales Tax:
Sales Tax in India is a form of tax that is imposed by the Government on the sale or purchase of a particular commodity within the country. Sales Tax is imposed under both, Central Government (Central Sales Tax) and State Government (Sales Tax) Legislation. Generally, each State follows its own Sales Tax Act and levies tax at various rates. Apart from sales tax, certain States also imposes additional charges like works contracts tax, turnover tax and purchaser tax. Thus, Sales Tax acts as a major revenue-generator for the various State Governments. From 10th April, 2005, most of the States in India have supplemented sales tax with a new Value Added Tax (VAT).13. Value Added Tax (VAT):
Value added tax (VAT) is a multi-point tax, which is applied at each stage of sale of a product where the final tax is borne by the last consumer. It is collected at the stage of manufacturing and each resale as well. It anticipates rebating of tax paid on inputs and purchases. VAT in India generally classified under the tax slabs are 0% for essential commodities, 1% on gold bars and expensive stones, 4% on industrial inputs, capital merchandise and commodities of mass consumption, and 12.5% on other items. Variable rates (State-dependent) are applicable for petroleum products, tobacco, liquor, etc.14. Customs duty:
Customs Duty is the charge levied when goods are imported into the country, and is paid by the importer or exporter. Under the custom laws, various types of duties can be levied. These duties include Basic duty, anti-dumping duty, protective duty, export duty, National calamity contingency duty etc. The import duty is levied by the government to protect indigenous industries as well as to keep the imports to the minimum in the interests of securing the exchange rate of Indian currency.15. Excise Duty:
Excise duty is an indirect tax that is paid by the manufacturer on items manufactured within the country and are meant for domestic consumption. In other words, excise duty is levied and collected on the goods or commodities manufactured in India. This duty is not payable on the goods exported out of India.16. Security Transaction Tax (STT):
Securities transaction tax is levied on all transactions done on a stock exchange. STT is applicable on purchase or sale of equity shares, derivatives, equity oriented funds and equity oriented Mutual Funds. A person becomes investor after payment of STT at the time of selling securities (shares). STT was introduced to curb tax evasion on capital gains.17. Entertainment Tax:
This tax is imposed by state government on all the financial transactions related to entertainment like cinema, DTH and cable T.V., amusement, horse race etc. Different tax rates are applicable for these services in various states.18. Education Cess and Surcharge:
In India, the education cess and a surcharge is charged in addition to any other tax or duty. This tax is calculated on the tax amount due. The proceeds from education cess are used for improvement of education sector in India.A surcharge is an additional levy on the tax that an individual pays. For example, a surcharge of 10% of the Income Tax is applicable, where total taxable income is more than Rs. 1 crore. If the tax on an income of Rs 1 crore is Rs 30 lacs and a surcharge of 10 per cent is levied, the total tax liability on the taxpayer would be Rs 33 lacs.
courtesy : bankbazaar
