Taxes make up the cornerstone of any country’s development, especially if a country is still on the path of development. Tax levied by the government draws an outline for any country’s economy, infrastructure, its systems and people.
Taxes form a key and largest source of income for the government. The government utilises the money collected from taxes to introduce several new projects which contribute towards the development of the country.
The tax structure comprises the central government, state governments, and local municipal bodies.
The tax structure in India is divided between two types of taxes, the direct and the indirect taxes.
Typically, the first kind of tax, which is in the direct tax, is levied on the income which is taxable and is earned by individuals and corporate entities. Here, the responsibility to deposit taxes is on the assessees themselves.
Let’s take an elaborate look at how the Indirect Tax is further divided-
The Income Tax, Corporate Income Tax, Securities Transaction Tax, Banking Cash Transaction Tax are all classified under the Direct Tax system.
This is the kind of tax that is levied on the individuals whose income falls under the taxable category which depends on salary bracket, age and the gender.
The Indian Income Tax Department is governed by the Central Board and is overlooked by the Department of Revenue under the Ministry of Finance, Govt. of India. Income tax is one of the most important sources of funds and revenues that the government uses to fund its activities and serve the public.
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This is the tax which is levied on the profits that are earned by the corporate house in a year. In our country, currently the Corporate Income tax rate is a tax collected by the government from companies. The tax collection is based on the net income companies obtain while exercising their business activity, normally during one business year.
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This tax which was Introduced in 2004 is levied on the sale and purchase of equities. The income an individual generates through the securities market be it through re-selling of shares or through debentures is taxed by the government of India and the same tax is called as Securities Transaction Tax.
This is a tax levied on debit (and/or credit) entries on bank accounts. It can be automatically collected by a central counterparty in the clearing or settlement process.
The second kind of tax, which is the Indirect taxes are levied on the sale and provision of goods and services respectively. And here, the responsibility to collect and deposit taxes is on the sellers instead of the assesses directly.
The taxation system in India is such that the taxes are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such as the Municipality and the Local Governments.
The tax came into effect from 1 July 2017 through the implementation of the One Hundred and First Amendment of the Constitution of India by the Indian government. The GST replaced existing multiple taxes levied by the central and state governments.
Prior to this, India levied several erstwhile indirect taxes such as service tax, Value Added Tax (VAT), Central Excise, etc., which used to be levied at multiple supply chain stages. Some taxes were governed by the states and some by the Centre. There was no unified and centralized tax on both goods and services. Hence, GST was introduced.
Goods and Services Tax (GST) is an indirect tax (or consumption tax) which is levied in the country on the supply of goods and services.
Typically, it is a comprehensive, multistage, destination-based tax: comprehensive kind of a tax as it has subsumed almost all the indirect taxes except a few state taxes.
The same is levied at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and as a destination-based tax, it is collected from point of consumption and not point of origin like previous taxes.
Goods and services are widely divided into five different tax slabs for collection of tax and starts from: 0%, 5%, 12%, 18% and 28%.
However, so far, the petroleum products, alcoholic drinks, and electricity are not taxed under GST and instead are taxed separately by the individual state governments, as per the previous tax system.
Again, this is a type of indirect tax levied on goods imported into India as well as on goods exported from India. In India, the basic law for levy and collection of customs duty is Customs Act, 1962. It provides for levy and collection of duty on imports and exports.
An excise or excise tax is an inland tax on the sale, or production for sale, of specific goods or a tax on a good produced for sale, or sold, within a country or licenses for specific activities. Excise duties are distinguished from customs duties, which are taxes on import.
Service Tax is a tax imposed by the Government of India on services provided in India. The service provider collects the tax and pays the same to the government. It is charged on all services except the services in the negative list of services.
While service tax, excise and customs duty is collected by the central government, luxury tax and VAT is collected by various states.
Moving beyond the above mentioned taxes, the Central Government also had launched the Capital Gains tax long term , around three years ago wherein an individual is taxed if holding capital for more than a year, earlier many people kept things for long term just to evade short term taxes.
Another is Securities Transaction Tax falling on securities, sometimes extra cess is charged on many things, this cess is tax upon tax. GST subsumes all but still GST is not applicable for Alcohol, Petroleum products, Tobacco and some other items.