Types of Taxes in India India is a country which consist of a very complex financial system with dozens of taxes for the different sources. It is not easy for a common man to understand the fundamentals of tax system and purpose of each type of tax. Knowingly or unknowingly we are paying taxes for everything we are doing daily basis. If you go for a saloon, there you pay tax for the service offered by barber. Indian financial system is surrounded by various taxes to increase the income for our government. Whether the taxes are good for common man or not, and how the taxes are utilized for public, that is question open for a debate. Let us have a detailed run through of various taxes available in our financial system. At the end of this article, I would like to hear your feedback on your understanding about the tax system and write your questions to have a good discussion on the topic. Also join us in the face book fans page to write your comments. Types of Taxes Taxes are paid to the government for utilizing that amount for the common welfare schemes. The tax rates are announced every year at the time of union budget every year for the next financial year. The tax rates are increased or decreased based on the current account deficit or fiscal deficit of our government. In a larger picture, tax is divided into two categories. It is known as Direct Tax and Indirect Tax. Direct Tax is handled by Central Board of Direct Tax (CBDT) and Indirect Tax is handled by Central Board of Excise and Customs (CBEC). If you pay any tax, that will fall under any of the above two categories. Direct Tax Direct Taxes are directly collected from the tax payers. It makes every individual who are earning money are liable to pay a certain amount of tax to the government. It is a very higher level view on the direct tax, but there are various rules and regulations under this category based on the type of tax payee and type of income. Income Tax Income Tax is the largest and well known tax category for the common man. This tax is directly taken from every individual and he is liable to pay the tax due every year. If tax payee is employee of a company, then tax is deducted as Tax Deducted as Source (TDS).. Who are running a business, professions like doctors, charted accountants, consultants, etc. has to volunteerly declare the income and pay the tax at the time of income tax return filing. Also if the income id below the specified level then he need not pay the income tax. Wealth Tax Wealth Tax is paid for the owning of residential house, farm house, jewellery, motor cars, cash in hand, etc. which exceeds Rs. 30 lacs. This is a annual tax burden for the property owner. Note that, while calculating the total wealth, deduct the any outstanding debt for that property. There will be 1% wealth tax for the amount exceeds Rs. 30 lacs. The amount Rs. 30 lacs is announced from the Assessment Year 2010-11. Prior to that it was calculated on Rs. 15 lacs. There are various exemptions and clubbing methods applicable while calculating the total asses. Please read this link for more details on wealth tax. Capital Gains Capital Gains are levied on sale of a property like house, land, commercial assets, etc. This is a fixed tax of 20% on the profit made on the transactions. There is two types of capital gains, short term and long term. If you sell a property with in three years of purchase then this gains are considered as short term nature. If the transaction happened after three years of completion, then it is long term gains. Short term capital gains are fall under the normal income tax category and added to the other incomes. Long term capital gains attract 20% of gains on the sale. There are few ways we can claim the tax exemption on capital gains. I have explained capital gains in this blog several times. Please read the following articles to know more about this topic. How to plan income tax for Capital Gains? What is capital gains account scheme? When Agriculture Land is Capital Asset? Corporate Tax Companies in India has to pay the tax specified for their profits. The rates for the companies are different from the rates which are used for the individuals. There is separate laws applicable to the corporate taxes. It is one of the major revenue to the government. Indirect Tax Impact of the indirect tax is not on the direct persons. This tax is levied on the different group of people. Service Tax Service Tax is levied on the aggregate amount paid to the service providers. Service provider is responsible for paying the service tax to the government. However, all the service provider pass this burden to the customers and collect the service tax from the customers. This tax was first introduced in 1994 by finance minister Dr. Manmohan Singh. Earlier this service tax was applicable only to few listed services, but in the budget speech at 2012 budget, finance minister Pranab Mukherjee has announced that all the services except the negative services would be fall under the service tax net. Every service provider has to register if the total value of the service exceeds Rs. 9 lacs for one year. But, he has to pay service tax if it exceeds Rs. 10 lacs. India, except Jammu and Kashmir, all other states has to pay the service tax. Effective current service rate is 12.36%. Few example for the services are Internet service, Mobile phone service, Hotels, Saloon, etc. Sales Tax and VAT Sales tax is supplemented with the Value Added Tax (VAT) to make it uniform across the country. Sales Tax is collected on the goods sold to the customers. When customers buy any product from the market, the VAT is added to the total bill amount. We can also say VAT as the consumption tax. The value added tax was introduced as an indirect tax into the Indian taxation system from 1 April 2005. Rate for the VAT is differ for each state. The common rate is above 4% on the purchase amount. Custom Duty Custom Duty is charged on Import/Export products from India. Rate of the custom duty is different for each products. Government keep changing rate for the imported duties considering the current demand in the country. One of the example is, govt. has heavily increased the custom duty for gold import to strengthen measure to reduce the gold imports. In the same way, if you order any product from another country, while it is taken to India, customer has to pay the custom duty at the time of entering India. Another example is Oil import which has the heavy custom duty levied on its import. If you want know about the charges for each products, please refer the govt. source on custom duty for more details. Excise Duty Excise duty is levied on the products manufactured in India. The liability to pay tax excise duty is always on the manufacturer or producer of goods. Duty is not payable on the goods exported out of India. Security Transaction Tax (STT) The securities transaction tax (STT) was introduced in India a few years ago, to stop tax avoidance of capital gains tax. This tax is levied on the every transaction performed on the stock exchanges to purchase shares, mutual funds, etc. This STT is introduced on 2004-05 by the finance minister P. Chidambaram. STT is applicable to shares, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate, Derivatives, Equity-oriented mutual funds and STT is not applicable for any off-market transaction. In the budget 2013-14, finance minister has reduce the STT rate on equity and mutual funds. STT charge on equity is 0.1% and on mutual funds or ETFs are 0.001% levied on the seller. Summary This article has highlighted the different types of taxes with brief summary for each type of tax. Each type of tax has its own guide to study and understand the various internal laws applicable in the different scenarios. It looks like Indian financial system is becoming more complicated with many number of taxes with lot of burden to the common man. If you note that, most of the taxes are introduced in the past ten years, but the outcome of the reforms are not seen in the Indian industry. Almost every where taxes are levied and common man is spending lot of money on taxes more than what has has to pay. Where all these money are spent?. We trust government can provide a good service to its citizens with all that money taken from us
Posted on: Fri, 12 Jul 2013 02:14:06 +0000
Trending Topics
Recently Viewed Topics
© 2015