Income Tax India

Other Taxes & Income Tax India

income tax in india

Tax is imposing financial charges on individual or company by the central government or state government. The collected Tax amount is used for building nation (infrastructure & other development), to increase arms and ammunition for the defense of the country and for other welfare-related work. That’s why it is said that

Taxes are paid nation are made

TYPES OF TAXES IN INDIA

DIRECT TAX

These types of taxes are directly imposed & paid to Government of India. There has been a steady rise in the net Direct Tax collections in India over the years, which is a healthy signal. Direct taxes, which are imposed by the Government of India, are:

(1) Income Tax

Income tax in India, this tax is mostly known to everyone. Every individual whose total income exceeds taxable limit has to pay income tax based on prevailing rates applicable time to time. By doing investment in the certain scheme you can save Income Tax.

For FY 2015-16 Income tax rates are:-

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) Capital Gains Tax

Capital Gain tax as the name suggests it is a tax on the gain in the capital. If you sell property, shares, bonds & precious material etc. and earn a profit on it within the predefined time frame you are supposed to pay capital gain tax. The capital gain is the difference between the money received from selling the asset and the price paid for it. Capital gain tax is categorized into short-term gains and long-term gains. The Long-term Capital Gains Tax is charged if the capital assets are kept for more than certain period 1 year in case of share and 3 years in case of property. Short-term Capital Gains Tax is applicable if these assets are held for less than the above-mentioned period. The rate at which this tax is applied varies based on investment class.

Example:- If you purchase a share at say 1000 Rs/- (per share) and after two months this price increased to 1200 Rs/-(per share) you decide to sell this stock and earn a profit of 200 Rs/- per share. If you do so you have to pay a Short-term CGT (capital gain tax) @ 10% +Education cess on profit as it is a short-term capital gain. If you hold the same share for 1 year or above it is considered as long-term capital gain and you need not pay capital gain tax. It is considered as tax-free. Similarly, if you purchase the property after two years if you find that property price in which you invested has increased and you decide to sell it you need to pay short-term capital gain tax. For property, it is considered as long-term capital gain if you hold property, for 3 years or above.

(3) Securities Transaction Tax

A lot of people do not declare their profit and avoid paying capital gain tax, as the government can only tax those profits, which have been declared by people. To fight with this situation Government has introduced STT (Securities Transaction Tax ) which is applicable to every transaction done at the stock exchange. That means if you buy or sell equity shares, derivative instruments, equity oriented Mutual Funds this tax is applicable. This tax is added to the price of the security during the transaction itself, hence you cannot avoid (save) it. As this tax amount is very low people do not notice it much.

(4) Prerequisite Tax

Earlier to Prerequisite Tax we had a tax called FBT (Fringe Benefit Tax) which was abolished in 2009, this tax is on benefit given by the employer to employee. E.g If your company provides you non-monetary benefits like a car with driver, club membership, ESOP etc. All this benefit is taxable under perquisite Tax.

In case of ESOP, The employee will have to pay tax on the difference between the Fair Market Value (FMV) of the shares on the date of exercise and the price paid by him/her.

(5) Corporate Tax

Corporate Taxes are annual taxes payable on the income of a corporation operating in India. For the purpose of taxation companies in India are broadly classified into domestic companies and foreign companies. In addition to above, other taxes are also applicable on corporates.

INDIRECT TAX

(6) Sales Tax

Sales tax charged on the sales of movable goods. Sale tax on Inter State sale is charged by Union Government, while sales tax on intra-State sale (sale within State) (now termed as VAT) is charged by State Government. Sales can be broadly classified into three categories. (a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e. within the State) sale. State Government can impose sales tax only on sale within the State. CST is payable on inter-State sales is @ 2%, if C form is obtained. Even if CST is charged by Union Government, the revenue goes to State Government. State from which movement of goods commences gets revenue. CST Act is administered by State Government.

(7) Service Tax

Most of the paid services you take you have to pay service tax on those services. This tax is called service tax. Over the past few years, service tax been expanded to cover new services. Few of the major service which comes under vicinity of service tax are a telephone, tour operator, architect, interior decorator, advertising, beauty parlor, health center, banking and financial service, event management, maintenance service, consultancy service. The current rate of interest on service tax is 14%. This tax is passed on to us by the service provider.

(8) Value Added Tax

The Sales Tax is the most important source of revenue of the state governments; every state has their respective Sales Tax Act. The tax rates are also different for respective states. The tax imposed by the Central government on the sale of goods is called as Sales tax same is called as Value added tax by the state government. VAT is added to the price of goods and passed on to us as a buyer (end user). Around 220+ Items are covered with VAT. VAT rates vary based on nature of item and state. Government is planning to merge service tax and sales tax in form of Goods service tax (GST).

(9) Customs duty & Octroi (On Goods)

Customs Duty is a type of indirect tax charged on goods imported into India. One has to pay this duty, on goods that are imported from a foreign country into India. This duty is often payable at the port of entry (like the airport). This duty rate varies based on nature of items. Octroi is tax applicable on goods entering into the municipality or any other jurisdiction for use, consumption or sale. In simple terms, one can call it as Entry Tax.

(10) Excise Duty

An excise or excise duty is a type of tax charged on goods produced within the country. This is opposite to customs duty which is charged on bringing goods from outside of the country. Another name of this tax is CENVAT (Central Value Added Tax). If you are producer/manufacturer of goods or you hire labor to manufacture goods you are liable to pay excise duty.

(11) Anti-Dumping Duty

Dumping is said to occur when the goods are exported by a country to another country at a price lower than its normal value. This is an unfair trade practice which can have a distortive effect on international trade. In order to rectify this situation Central Govt. imposes an anti-dumping duty not exceeding the margin of dumping in relation to such goods.

OTHER TAXES

(12) Professional Tax

If you are earning professional you need to pay professional tax. Professional tax is imposed by respective Municipal Corporations. Most of the States in India charge this tax. This tax is paid by every employee working in Private organizations. The tax is deducted by the Employer every month and remitted to the Municipal Corporation and it is mandatory like income tax. The rate at which this tax is applicable is not same in all states.

(13) Dividend Distribution Tax

Dividend distribution tax is the tax imposed by the Indian Government on companies according to the dividend paid to a company’s investors. Dividend amount to the investor is tax-free. At present dividend distribution tax is 15%.

(14) Municipal Tax

Municipal Corporation in every city-imposed tax in terms of property tax. Owner of every property has to pay this tax. This tax rate varies in every city.

(15) Entertainment Tax

Tax is also applicable on Entertainment; this tax is imposed by state government on every financial transaction that is related to entertainment such as movie tickets, major commercial shows exhibition, broadcasting service, DTH service and cable service.

(16) Stamp Duty, Registration Fees, Transfer Tax

If you decide to purchase property than in addition to the cost paid to the seller. You must consider additional cost to transfer that property on your name. That cost includes registration fees, stamp duty and transfer tax. This is required for preparing a legal document of property. In a simple sense, this tax is imposed on the handing over of the title of property ownership by one person to another. It incorporates a legal transaction fee & stamp duty. This amount varies from property to property based on cost.

(17) Education Cess, Surcharge

Education cess is deducted and used for Education of poor people in INDIA. All taxes in India are subject to an education cess, which is 3% of the total tax payable. The education cess is mainly applicable to Income tax, excise duty and service tax. The surcharge is an extra tax or fees that added to your existing tax calculation. This tax is applied to tax amount.

(18) Gift Tax

If you receive a gift from someone it is clubbed with your income and you need to pay tax on it. This tax is called a gift tax. This tax is applicable if gift amount or value is more than 50000 Rs/- in a year.

(19) Wealth Tax

Wealth tax is a direct tax, which is charged on the net wealth of the assessee. Wealth tax is chargeable in respect of Net wealth corresponding to Valuation date. Net wealth means all assets fewer loans taken to acquire those assets. Wealth tax is 1% of net wealth exceeding 30 Lakhs (Rs 3,000,000). So if you have more money, assets you are liable to pay tax. Note:- Wealth tax is abolished by the government in budget 2015. Now onwards surcharge of 12% is applicable to individual earning 1 crore and above.

(20) Toll Tax

At some of the places, you need to pay tax in order to use infrastructure (road, bridge etc.) build from your money given to the government as Tax. This tax is called as toll tax. This tax amount is very small amount but, to be paid for maintenance work and good up keeping. So in total, you pay 20 different taxes in the direct or indirect way. At the end, in order to make you laugh, I will tell you one small joke on tax.

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