What is Tax and Types of Taxes in India

What is Tax?

A financial charge which every individual has to pay to the government is called as Tax. These taxes are charged by the government in order to spend the tax funds in government spending and in many other public expenditures. Most of the countries charge tax on the annual income and also on the income of the corporate individuals. Some countries often apply tax on inheritance taxes, gift taxes, property tax, sales taxes, wealth taxes, payroll taxes, tariffs, GST, VAT.

 

What is tax, type of taxes in india

Types of Taxes India

  1. Direct Tax
  2. Indirect Tax

Direct Tax-

The tax that is directly paid to the government is said to be the Direct Tax. The main examples of direct taxes are Corporation tax and income tax.

Indirect Tax-

The tax burden which is passed to the different entity once it is paid by the taxpayer is called the Indirect Tax. VAT and GST are examples of indirect taxes.

Direct Taxes in India-

  • Income Tax in India

Every Individual must have to pay the required amount of tax to the government once fulfilling certain criteria on their income. The income tax is the annual direct tax which has to be paid by all the legal companies, corporate firms, local authorities, and every individual.

It is calculated depending on the income of the person which is taxable. It is applicable at the incremental income tax slab rates. These slab rates are decided as lower slab rate tax for the lower-income and higher tax slab rates for the higher income. In India, the income tax cycle coincides with the financial year of April 1st of the year and it ends on the next calendar year of March 31st. Here are some more details about the Tax.

  • Negative Income Tax-

A system where people’s earnings are below a certain amount, who receives supplemental payment from the government instead of paying the taxes, is a Negative Income Tax.

  • Capital Gains Taxes-

When someone gains profits by selling their certain types of assets, need to pay some fee to the government on that profit. This payment is known as the Capital Gains tax. The calculation of this tax is done as follows the total sale prices minus the original price of the sold asset. Most probably you have to pay the tax at the capital gain rate of the profits.

  • Payroll Tax-

A tax paid from an employee’s salary to the employer, who pays it to the government, on their behalf. This payroll tax is depended on the tips, salaries paid to the employees. Hence these payroll taxes are directly paid to the IRS Internal Revenue Service by the employer from the employee’s payment.

  • Wealth Tax-

 A tax that is applied to the personal assets of the individuals, as per 1957, Wealth Act Tax. This is also a type of direct tax. The main aim of this tax is to bring equality between the rich and the less affluent taxpayers.

  • Property Tax-

A tax paid by the landowners to the local government of the municipal corporation of the particular area is called the property tax. In this tax, it includes office buildings, real estate property, his own house, and also the property which he has given for the rent to others.

  • Inheritance Tax-

The one who derived properties from the deceased person has to pay the inheritance tax. This tax is depended on the beneficiary relationship to the decedent, inheritance value, and residence state.

  • Expatriation Tax-

This expatriation tax provisions are under Sec 877 and Sec 877A by the IRC Internal revenue Code. Expatriation taxes are the charges paid by the individuals who give up their citizenship.

  • Transfer Tax-

The transfer tax is to be paid by the individuals when one’s property is transferred on the names of the others. Depending on the value of the property only, this property tax is based. In this property tax, even the federal, estate, and inheritance taxes are also considered. This tax is calculated by rounding up the actual amount and it will be multiplied by 0.11%.

For example, if your selling rate is 5,40,746/-, it will be rounded up as 5,40,750 and is multiplied by 0.11%.

  • Road Tax
  • Stamp Duty

are other examples of Direct Taxes.

Indirect Taxes In India

VAT Value Added Tax-

A value is added on each stage of the supply chain, right from the production till the sale. Then a consumption tax is placed on the products. These taxes are called VAT which is also known as Value added tax. The individuals will pay the VAT on the cost of the products.

GST Goods and Services tax-

For domestic consumption, many goods and services are sold. On most of these goods and services, there is a value-added tax. This tax is GST known as Goods and Services Tax. This tax is remitted to the government after the GST paid by the consumers. It is remitted to the government by selling goods and services.

Sales tax-

The percentage of the calculated amount on the cost of a product when it is purchased by the consumer is a sales tax. Both the local tax and combined tax will be paid by the consumers each time when they purchase anything,

Environmental Tax-

Green tax is another name of the Environmental tax. There are also other names of it as Eco taxes/ pollution taxes. These are the taxes which have to be paid by the individuals on goods which produce pollution.

The other taxes are

  • Excise Duty
  • Custom Duty
  • Securities Transaction Tax
  • Dividend Distribution Tax