TABLE OF CONTENTS
- Introduction
- Types of Taxation in India
- Direct Tax
- Indirect Tax
- GST in India
3. Tax Structure in India
4.Direct and Indirect Taxation Benefits
5.Conclusion
6.FAQs
Introduction
The Indian tax system today was conceptualized during British rule. However, there were so many intricacies in its structure because of the presence of several types of taxes in India. Nonetheless, after the post-independence period, things took a major turn with several changes in the tax structure wherein numerous taxes were abolished and only important ones remained. Now, the two main structures are direct and indirect taxes.
Types of Taxes in India
Direct Tax
Direct taxes are imposed on individuals and corporate entities. Furthermore, these taxes are non-transferable. The most important kind of direct tax is the income tax, which is levied during each assessment year on people’s income or their profits. Direct taxes examples include the following:
- Income Tax
A tax is directly imposed on the taxpayer’s yearly income if their income falls under the tax brackets instituted by the government.
- Corporate Tax
Companies and organizations in India have to pay a direct tax to the government. Moreover, corporate taxes are collected at a flat rate on a company’s net profit in the relevant fiscal year.
- STT or Securities Transaction Tax
A direct tax levied on the purchase and sale of equity securities listed on recognized stock exchanges.
Indirect Tax
Indirect taxes are levied on goods and services consumption. It’s not levied directly on a person’s income. Rather, individuals have to pay tax along with the price of goods or services bought by the seller. The person who has to pay the government and the person who bears the liability to pay tax are, therefore, two different people. Indirect taxes include the following:
- Service Tax
Charged on services availed by a customer. If, for instance, you book a hotel accommodation, you will be charged a service tax on the amount of your hotel booking.
- Value Added Tax or VAT
Tax paid on the value addition in price upon the sale of goods. One example is a wholesaler selling goods to a retailer.
- Excise Duty
Paid for goods manufacture. For instance, if you manufacture a car, you’re liable to pay excise duty on manufactured cars.
- Entertainment Tax
Levied on every transaction related to entertainment. Some examples include movie tickets, stage shows, exhibitions, sports-related activities, exhibitions, and so on.
- Custom Duty
Paid on imported goods.
- Stamp Duty
Paid on the sale of immovable property. Furthermore, it’s mandatory on all kinds of legal documents.
Introducing GST in India
2017 was the year that the GST in India was first introduced. GST, or Goods and Service Tax is levied at every point of sale. The framework incorporates different indirect taxes, including excise duty, VAT, and service tax. It reduces the tax burden and promotes simplicity. As a remarkable reform, it holds numerous benefits for businesses and the general public in the country.
The entire GST process, from registration to filing returns is made online and is pretty straightforward. This has been particularly beneficial to startups, since they need not run from pillar to post to get various registrations, including excise, tax, VAT, and service tax.
Tax Structure in India
India’s tax structure consists of the following:
- Central Government
- State Governments
- Local Municipal Bodies
The Indian Constitution states that no tax shall be collected or levied except by law. Moreover, taxes are determined by the central and state governments, together with local authorities, including municipal corporations. Unless passed by law, the government cannot impose any tax.
Direct and Indirect Taxation Benefits
Benefits of Direct Taxes
- Promotes certainty. The annual tax is the same every year as long as there is no change in the salary.
- Promotes flexibility. Taxes are government earnings and when they fluctuate, earnings also change. They either go higher or lower.
- Saves time and money. Some companies use automatic payroll deduction systems, saving both time and money.
Benefits of Indirect Taxes
- Convenient to collect. The service provider or seller can collect it directly at their store, making it convenient for the government. They’re primarily nominal charges included in the prices of goods and services.
- Default tax payment. Indirect taxes often are included in most products and services consumed by people; thus, everyone has to pay them.
- Digital collection. With the growing popularity of e-payment methods to purchase goods and services, collecting indirect taxes has become easier. They’re auto-filled by e-payment platforms.
Conclusion
There are several views about the imposition or non-imposition of the India Taxation system. The benefits from paying taxes will not be instantaneous but a gradual process where privileges will be experienced in the long term. The tax structure has been modified several times which has significantly enhanced the ability of the common people to understand these laws, bringing about tax payment ease, enhanced law enforcement, and better compliance.
FAQs
What is the GST all about?
GST is an extensive indirect tax levied on manufacturing, selling, and consuming goods and services at the national level.
Can you tell me the difference between direct and indirect tax?
Direct tax is directly paid by a person or an organization. An indirect tax basically is a tax that can be passed on to another individual or entity.
Does India provide a double taxation relief?
This is offered to individuals charged with taxes on the same source of income in India and a different country. This is allowed under Section 91 of the Income Tax Act.
What does PAN mean?
A Permanent Account Number or PAN is a ten-digit number issued by the Income Tax Department and is a unique number assigned to every taxpaying person or organization.
What is the Indian GST rate?
The GST rates in India for different goods and services are divided into four slabs. These include 5 percent GST, 12 percent GST, 18 percent GST, and 28 percent GST.
In the new regime, is the standard salary deduction available?
Yes, a standard Rs 75,000 deduction is available to taxpayers. Thus, a salaried taxpayer is not required to pay any tax if his/her income is less than or equal to Rs.12.75 lakh.