What are the Different Types of Taxes in India?

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What are the Different Types of Taxes in India?

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What are the Different Types of Taxes in India?

An essential part of being a responsible and productive citizen of your country is paying your taxes on time. Tax is basically the contribution you make towards the growth and development of your country. Tax payments are either deducted from an individual’s income or added to the cost of some transactions, and services and goods. In India, every tax levied is backed by a law passed by the Parliament or the State legislature.

We pay taxes in different forms and differ, based on the implementation and how they are paid to the authorities. The two types of taxes in India defined under our tax system are direct tax and indirect tax. These two types of taxes are further subdivided into other categories.

Let’s see how these two types of taxes differ:

Direct taxes:

It is the tax which is directly paid by the taxpayer to the government. To estimate the amount to be paid through direct taxes, you will have to check your wealth or income. The CBDT (Central Board of Direct Taxes) overlooks India’s direct taxes. A direct tax is not transferred to any other entity or individual other than the taxpayer on whom it is levied. Types of direct taxes are:

  • Income tax:
    This tax entails taxing an individual’s income generated through different sources like salary, investments, property, business, etc. The income tax act describes a tax benefit that you can get through insurance premium or fixed deposits. They also help in deciding savings from income through investments and tax slab.

  • Corporate tax:
    Income tax a company pays from its revenue earned by it is called a corporate tax. Corporate tax has its own slab for deciding the amount to be paid.

  • Perquisite Tax:
    Under this tax, any perks or privileges provided to you by your employer, like a car, house, fuel, etc. are taxed considering how the perks are used. Personal uses of the perk will be taxed, while official uses are not eligible.

  • Securities Transaction tax:
    The tax is levied with including a share’s price and tax. It means, every time you buy or sell a share, you have to make a payment of this tax.

  • Capital gains tax:
    This tax is payable when you get a significant lump sum of money. They include two types of capital gains, long-term capital gains and short-term capital gains. The tax applicable for both is different as short-term gains tax is computed depending on the income bracket.

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Indirect taxes:

An indirect tax is applied to the sale and purchase of services or goods. A government levies this tax on sellers and retailers of various products and services. The seller then shifts the responsibility of the tax payment on the buyer of the products and services. Hence, the user indirectly pays the tax to the Government of India.

Types of indirect taxes are:

  • Sales tax:
    A tax levied for the sale of a product is called sales tax. This tax is levied on a product’s seller who then passes the price to the product’s buyer with the tax included in the product’s price.

  • Service tax:
    Like sales tax, this tax is also included in the price of a product sold in the country. It is levied on the services that a company offers. They are collected depending on the way these services are offered.

  • Excise duty:
    Excise duty is the tax imposed on produced goods or goods in India. It is collected directly from the manufacturer of the goods. They are also collected from entities that receive the goods and work for the individuals to ship the products.

  • Value Added Tax (VAT):
    VAT is levied on different steps that are involved in the distribution of a product. Basically, from the manufacturer to the end-user, the tax is imposed on the product’s movement in the supply chain.

  • Custom Duty:
    Customs duty is the charge levied on any product that has been imported from abroad. It is to make sure the goods which enter the country are taxed and are paid for.

Ever since the inception of GST, many indirect taxes have been clubbed into one indirect tax – the Goods and Services Tax (GST).

  • Goods & Services Tax:

The GST is an indirect tax that has clubbed together many indirect taxes in India like excise duty, VAT, service tax, etc. This is the tax levied on the supply of services and goods, which are sold for domestic consumption in India.
GST is considered a multi-stage comprehensive tax which is levied as per the destination on the value addition. The tax is levied on the consumers buying the goods or services. However, the responsibility of remitting the tax to the government lies on the seller/provider of the goods and services.

There are three different types of GST in India:

a. CGST - Central Goods and Services Tax

b. SGST - State Goods and Services Tax

c. IGST - Integrated Goods and Services Tax

The CGST and SGST are levied on the intra-state transactions, while the IGST is levied on the inter-state transactions

- A Consumer Education Initiative series by Kotak Life

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