India is a democratic, socialist, and republican nation. The supreme law of the nation in India is the Constitution. The Indian Constitution is supreme over all other laws, including the Income Tax Act and the Central Goods and Services Tax Act. According to the Constitution, “no tax shall be imposed or collected unless by Authority of Law”.
Types of Taxes
In India, there are primarily two types of taxes:
- Direct tax: This is directly charged.
- Indirect tax: This is indirectly collected by the government.
Direct tax
Direct taxes are levied on an individual’s income and are paid for by the person upon whom they are levied.
Merits of Direct Taxes:
- a. It is more progressive and places a strong emphasis on equity.
- b. It has higher elastic properties.
Demerits of Direct Taxes:
- It is more likely to evade.
- It is a burden for tax payers.
- Direct taxation cannot be used to reach the low income group.
Types of Direct Tax:
a. Income Tax
With the Income Tax Act of 1961, income tax became a reality. This Act establishes all income tax laws and regulations. Any income you generate through profits, assets, salaries, investments, or a business is subject to income tax. The Income Tax Act of 1961 has provisions that allow taxpayers to get tax advantages from fixed deposits and insurance premiums.
b. Gifts Tax
The gift tax was first enacted in 1958, and it was renewed in 2004. According to the statute, every gift or present you get for more than Rs. 5 lakh would be subject to a 30% tax. Gifts from a spouse, family, parents, or blood relatives are exempt from the tax.
c. Wealth Tax
Individuals, Hindu Undivided Families (HUFs), and corporations are all subject to the wealth tax. For example, If your personal wealth exceeds Rs.1 crore, you’ll have to pay a 12% fee. Businesses with a revenue of more than 10 crore rupees are subject to property tax..
d. Long-Term Capital Gains
Hackable income is taxed at 0%, 15%, or 20% depending on the long-term capital gains rate. The tax rates are 0%, 15% (depending on the long-term capital gains rate), and 20% for hackable income.
e. Capital Gains on a Short-Term
The sale, transfer, or disposal of a personal or investment asset results in a short-term financial gain. When an investment, such as a stock, is sold after a year or less, it is referred to as short term capital.
Indirect Tax
They apply to both products and services. The supplier is immediately responsible for payment, but the final recipients of these goods and services bear the cost.
Merits of Indirect Taxes:
- Due to the fact that it is paid in smaller sums, it is thought to be more convenient.
- Evasion is not as likely to happen.
Demerits of Indirect Taxes:
- Its nature is more regressive.
- High expense of administration.
- Saving is discouraged.
Types of Indirect Tax:
a. Good and Services Tax (GST):
GST, or goods and services tax, is a consumption tax levied in India on the provision of products and services. Every step of the manufacturing process for any goods or value-added services is subject to GST. The parties involved in the manufacturing process will receive it back (and not the final consumers).
The GST eliminated many other taxes and fees, such as the value added tax (VAT), octroi, customs duty, central value added tax (CENVAT), as well as customs duty and excise duty. Electricity, alcoholic beverages, and petroleum products are some of the goods and services that are exempt from GST taxation. On these, as was the case under the old tax structure, state governments are taxed separately.
The Goods and Services Tax (GST) went into effect in 2017. Regardless of where the product is consumed, GST is levied at every step of the production chain. Under the new tax structure, there are four types of GST:
- Integrated Goods and Services Tax (IGST).
- State Goods and Services Tax (SGST).
- Central Goods and Services Tax (CGST).
- Union Territory Goods and Services Tax (UTGST).
b. Integrated Goods and Services Tax (IGST):
The Integrated Goods and Services Tax is imposed on the transfer of goods between states. This tax is governed by the IGST Act, and the organization is in charge of collecting IGST in accordance with the Act. The cash received will then be distributed to the individual states by the federal government.
For instance, the IGST rate is 18% if a Maharashtra vendor sells his goods for Rs. 6000 to a Karnataka customer. The merchant will pay the total amount after deducting the IGST of Rs. 6900, with the central government receiving the remaining Rs. 900.
c. State Goods and Services Tax (SGST):
All items sold inside the state’s borders are subject to the Items and Services Tax. If the dealer sells goods within the state, he is responsible for paying GST and SGST.
For instance, a Maharashtra dealer who sells goods to a Maharashtra customer is obligated to pay SGST. If the GST rate is 18%, the funds will be divided equally between the 9% CGST and the 9% SGST. If a business sells goods for Rs. 7000, it is required of him to pay Rs. 7900, of which Rs. 450 will be given to the state government and Rs. 450 to the federal government.
d. Central Goods and Services Tax (CGST):
The Central Items and Services Tax is imposed on items sold within a state’s borders, same like the State Goods and Services Tax (interstate). For instance, if a merchant sells items for Rs. 7000, the CGST and SGST portions of the GST will be split.
e. Union Territory Goods and Services Tax (UTGST):
The Union Territories’ good and services tax is identical to the state good and services tax. It is levied on the delivery of products and services in the Union Territories of the Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra Nagar Haveli, and Lakshadweep. The Union Territory Government collects the funds, and this act is governed by the UTGST Act.
Other taxes
Apart from direct and indirect taxes, there are also other sub-categories of minor cases. There are various functions managing these levies within the Income Tax Act. Minor revenue generators and cess taxes are among the other taxes. The following are the several subcategories of other taxes:
- Property Tax: Property tax, often known as Real Estate Tax or Municipal Tax, is a type of tax imposed on real estate. Property taxes apply to both residential and commercial property owners. It is used to keep certain essential civic services running. Property taxes are imposed by Municipal bodies based in each city.
- Professional Tax: People who practice a profession or earn a salaried salary, such as attorneys, chartered accountants, and physicians, are subject to this employment tax. The amount of this tax varies by state and is not a company tax levied in every state.
- Entertainment Tax: This is a tax paid on television shows, movies, exhibits, and other forms of entertainment. The tax is charged on the whole amount of money earned. Currently, states levy an entertainment tax, with rates ranging from 0% to 110 percent, with an average of 30%.
- The Registration fee, Stamp duty, and Transfer tax: The registration fee, stamp duty, and transfer tax are paid at the time of purchase or as a supplement to the property tax afterward. Section 80C allows you to deduct stamp duty, registration fees, and other expenditures that are directly linked to the transfer. This part has a limit of Rs. 1,50,000 as the maximum deduction amount.
- Education Cess: The Education Cess is a tax charged by the Indian government to subsidizes educational initiatives that it has launched and established. The education cess tax is a fee that is collected in addition to the ordinary tax in order to help the government pay basic education for children. The Finance Minister proposed a 4% Health and Education Cess in the 2018 Budget to help low-income and rural households fulfil their educational and healthcare needs.
- Entry Tax: This is a tax charged on items or goods entering a state, particularly through e-commerce sites, and is levied in states like as Delhi, Assam, Gujarat, and Madhya Pradesh, among others. For example, the government of Madhya Pradesh put a 4% entrance tax on all electronic items and a 15% tax on new 2-wheelers, 3-wheelers, and 4-wheelers. Goa, on the other hand, placed a 12.5 percent entrance tax on electronic items as well as a 12.5 percent tax on all sorts of motor vehicles.
Conclusion
Another goal of taxation is to provide funds for development projects and to reduce national inequality as much as feasible. As a result, people with greater incomes must pay a higher tax rate than those with lower incomes. So, these are the several forms of taxes in India that affect various areas. Both direct and indirect taxes are necessary for the country’s economic success. It is critical for residents to pay taxes on a regular basis in order for the country to function smoothly.