1. HR Glossary
2. Tax

Tax

What is Tax?

Tax is money that people or any businesses have to pay to the government. In turn, the government uses those funds to improve/undertake various public services like roads, schools, and hospitals. You can think of it like a contribution everyone makes to help pay for things that benefit everyone in the community.

Paying taxes to the government enhances a country's economic condition and living standards of their citizens. It serves various other purposes like development of the nation, improving the infrastructure, increasing social welfare and supporting the development of your country.

In India, the right of the government to collect taxes is derived from the Constitution, which assigns the authority to tax to both the Central and State governments. Any tax enforced in India must be supported by corresponding legislation enacted by either the Parliament or the State Legislature.

Types of Taxes in India

There are mainly two types of taxes which are further divided into other sub-categories.

1. Direct Tax

The taxes that an individual or any legal entity pays directly to the government is referred to as the Direct Tax. The sole responsibility of overlooking these taxes is done by the Central Board of Direct Tax (CBDT). Direct taxes cannot be paid by any other individual or entity.

Direct taxes are further divided into different categories which includes Income Tax, Capital Gains Tax, Securities Transaction Tax (STT), Prerequisite Tax and Corporate Tax. Corporate Tax is further subcategories into Dividend Distribution Tax, Fringe Benefit Tax, and Minimum Alternative Tax.

2. Indirect Tax

When the taxes are imposed on services or products, those are known as Indirect Tax. These taxes are collected by the service provider or the seller. This type of tax is included in the cost of the service or product, leading to a higher sale price. Presently, the government enforces a single form of indirect tax known as the Goods and Services Tax, or GST.

There are three types of Goods and Services Tax: Central Government Service Tax (CGST), State Government Service Tax (SGST) and Integrated Government Service Tax (IGST). The collection of GST depends on certain factors like Custom Duty, Excise Duty, Service Tax and Sales Tax.

3. Other Taxes

These other taxes contribute less significantly to revenue and consist of various small cess taxes. Here are the different sub-categories of these taxes:

• Property Tax
• Professional Tax
• Entertainment Tax
• Registration fees, Stamp Duty, Transfer Tax
• Entry Tax
• Road Tax/ Toll Tax

Benefits of Paying Tax

Taxes are a crucial way for the government to generate revenue. They are very important for keeping a country running and helping it grow. Paying taxes can benefit in several ways like:

• Funding public services like education and healthcare
• Maintenance of infrastructure such as roads and bridges
• Supporting social welfare programs
• Enhance country’s economic growth through government investment
• Ensuring national defense and security
• Enabling fair share of health
• Encouraging participation and duty in community services
• Enabling research and development in various sectors
• Protecting the environment through conservation funding
• Helping other countries and maintaining good relationships with them

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