Back in 2018, I received my first income from blogging. Therefore paying taxes for that income I felt proud that at last I have paid taxes. If you are also a proud citizen of India and want to pay taxes regularly then don’t complain about the taxes. You should feel proud that after generation of income you have paid taxes. After analyzing the tax-free sources of income, now we will discuss different types of taxes in India.
Broadly there are two types of taxes namely,
- Direct taxes such as Income tax, Corporate tax, Capital gains tax, Securities Transaction tax, etc.
- Indirect taxes such as Sales tax, Anti-Dumping duty, Professional tax, etc.
What is Direct Tax?
Direct taxes can be defined as the tax which is imposed and levied on the income by the Government to individuals, companies, firms or any other entity. The Central Board of Direct Taxes is the apex body of the direct taxation in India formed in accordance with the provision of the Central Board of Revenue Act, 1924.
Types of Direct Taxes in India
Here are the direct taxes which is imposed directly irrespective of individual or non-individual,
- Income Tax.
- Corporate Tax.
- Wealth Tax.
- Capital Gains Tax.
- Dividend Distribution Tax.
- Securities Transaction Tax.
- Fringe Benefit or Perquisite Tax.
- Gift Tax.
- Professional Tax
The Government allows its people to earn up to some extent and specifies a limit. Above that limit, an individual has to pay income tax on the income. If you have the following heads of income then you may file the income tax return,
- Income from salary or Pension.
- Income from Business or Profession.
- Rental income from house property.
- Income from capital gains.
- Income from other sources such as gift, horse races, etc.
In addition to this if you run a company or firm then you should submit the return irrespective of whether you make a profit or loss.
Irrespective of whether the company is domestic or foreign, both are liable to pay the tax if the company has any of the following sources of income,
- Income from a business.
- Income from capital gains.
- Rental Income from a rental property.
- Income from other sources i.e. Dividend income, Interest income, etc.
Every individual or firm or company is liable to pay the wealth tax @ 1% when the total net worth exceeds Rs. 30 Lakh as on valuation date in the case of you have the following assets,
- Land or building whether it is used for residential or other purposes.
- Jewellery irrespective of made of Gold, Platinum or any other precious metal, Bullion, Furniture, etc.
- Yacht, Boat, Aircraft not used for commercial purposes.
- Cash in hand when exceed Rs. 50, 000/-.
Capital Gains Tax
If you have Income from capital gains i.e. from the sale of house property, share or units of mutual funds you are liable to pay capital gains tax. You are liable to pay 15% tax on short term capital gains even if it is Rs. 100/- and 10% on long term capital gains if the capital gains exceed Rs. 1 Lakh via the selling of stocks or mutual funds. In the case of capital gains from house property, you are liable to pay short term capital gains tax @30% along with cess and surcharge. In the case of Long term capital gains i.e. the sale of house property after three years, you are liable to pay 20% with indexation or 10% without indexation.
Suppose, you buy 100 shares of Titan Company at the price of Rs. 456/- in 2017, and sell the stocks at the price of Rs. 1000/- in 2019.
Buying price = Rs. 456 × 100 = Rs. 45,600/-.
Selling price = Rs. 1000 × 100 = Rs. 1, 00,000/-
Long-term capital gains = Rs. 1 Lakh – Rs. 45,600/- = Rs. 44,400/-.
Since this is far less than Rs. 1 Lakh, therefore, you need not pay a penny.
Suppose you buy 300 shares of Titan Company at the price of Rs. 456/- in 2017, and sell the stocks at the price of Rs. 1000/- in 2019.
Buying price = Rs. 456 × 300 = Rs. 1, 36,800/-.
Selling price = Rs. 1000 × 300 = Rs. 3, 00,000/-
Long-term capital gains = Rs. 3 Lakh – Rs. 1, 36,800/- = Rs. 1, 63,200/-.
So, you need to pay long-term capital gains tax on Rs. 63,200/-.
Long-term capital gains tax is = 10% of Rs. 63,200/- = Rs. 6320/-.
If you have capital gains either from stock market investment or selling of property irrespective of short term or long term you should furnish the following details.
- The stock trading statement in case of capital gains from selling stocks i.e. purchase details, selling details. You can find the statement from your trading account.
- You must furnish the mutual fund statement in case of capital gains from the selling of equity mutual funds or ELSS.
- If you make a profit by selling a house or property then you must furnish the sale price, purchase price, details of registration and capital gain details.
Dividend Distribution Tax
Even though the dividend up to a limit of Rs. 10 Lakh in the hands of any individual is exempted from dividend tax, the dividend-paying companies are liable to pay the dividend distribution tax @20.56% irrespective of the amount on the dividend payout to the shareholders in any financial year.
Securities Transaction Tax
The securities transaction tax is levied at the time of buying and selling of any securities listed on the stock exchanges. Securities Transaction Tax is levied irrespective of buy and sale of following securities,
- Stocks, Equity oriented Mutual fund units.
- Exchange-Traded Funds.
- Debentures i.e. Convertible and Non-convertible Debentures.
- Government securities or corporate bonds etc.
Suppose you have Invested Rs. 1 Lakh in the stock market. In that case, you need to pay an STT of = 0.125% of Rs. 1 Lakh = Rs. 125/-.
Perquisites tax can be levied on the following cases when the employer offers the following benefits which are received by an employee apart from salary or wages such as,
- Offer a rent-free accommodation facility.
- Offer free supply of gas.
- The cost incurred on the connection of Water and electricity.
- Pay Professional tax of any employee.
- Gifts exceeding Rs. 5,000/-.
- Club membership and gym facilities.
Any gift received from any relative is totally tax-free. The gift may be in the form of money, jewellery, property, vehicle or any means. But in the case of non-relatives maximum Rs. 50,000/- as a gift can be received. More than this is taxable. Any gift received at the time of marriage from either relatives or nonrelatives is tax-free. Here are some exemptions in case of a person who receives Gifts (either in cash or in any kind) from any person under the provision of Section 56(ii) of the Income Tax Act. Here are details of relatives as defined by the Income Tax Department.
- Husband or wife i.e. spouse of an individual
- Brother or Sister of an Individual
- Sister or Brother of the spouse of that respective individual
- Brother or Sister of either of the parents of the individual
- Any Linear ascendant or descendant of the individual
- Any Linear ascendant or descendant of the spouse of the individual
- Spouse of the person mentioned above
If you are a salaried employee then you are familiar with the term professional tax. Usually, a professional tax is levied by the State Government on the income incurred from any kinds of professions, trades, and employment, etc. The article 276 empowers state governments to levy the professional taxes not more than Rs. 2500/-. Professional taxes may vary across states. In other words, different states have different professional taxes.
What is Indirect Tax?
Unlike the direct taxes, indirect taxes are levied on the expenses incurred by any individual or non-individual. The Central Board of Indirect Taxes and Customs is the apex body of indirect taxation in India.
Types of Indirect Taxes in India
Here are the indirect taxes imposed and levied indirectly irrespective of individual or non-individual.
- Sales Tax.
- Service Tax.
- Excise Duty.
- Customs Duty.
- Value-added Tax.
- Entertainment Tax.
- Anti Dumping Duty.
- Municipal Tax.
- Stamp Duty, Registration fee on the property.
- Toll tax.
- Entry Tax.
- Goods & Services Tax.
- Education Cess.
- Krishi Kalyan cess.
- Swatch Bharat cess.
- Infrastructure cess.
Sales Tax is imposed on various goods on selling and purchasing of goods. In other words, when an individual purchases any product he is liable to pay over and above the base value of any product. Usually, the Government enables the seller to recover the tax from any purchaser. The sales tax is charged at a fixed percentage in accordance with the price of the product when anyone buys the product. Article 456 enables the Central government as well as the state government to fix the sales tax.
Finance Act, 1994 enables the Central Government of India to levy the Service tax from the services provided to the consumers. Any individual consumer needs to pay a 15% service tax in accordance with the transaction amount. Usually, service providers charge service tax from the consumers and credit to the government. If the taxable services offered by the service providers do not exceed Rs. 10 Lakh in any financial year he can avail an exemption.
The Excise Duty is levied by the state government on certain goods for not only production but also for sale or licenses of several services. Excise duty is charged by the state government on certain goods or products such as narcotics, alcohol, etc. In other words, Excise duty collected by the retail stores from the consumers and credit to the government.
‘Customs Duty’ is imposed by the central government when the goods are transported across international borders. The main object of customs duty is to safeguard the domestic economy, jobs, by regulating the movement of goods while to and fro of any country. Customs duty may vary based on various conditions including where the goods are manufactured, the material used to make the product, etc.
Value Added Tax
Since the inception and till a person purchases any product or services a special tax is levied in every stage is called a value-added tax. Value added tax is levied from the end consumer when the goods and services are sold. Value-added Tax is levied by the service providers from the consumers or end users who have purchased the goods or commodities or services. Finally, the service providers forward the tax which is collected from the end users. Any individual with an annual turnover of more than 5 Lakh by supplying goods and services are liable to register in the VAT Portal.
Article 246 empowers a state government to levy Entertainment tax on the following occasions,
- Booking Movie tickets.
- Booking live music concerts.
- Entry fee of amusement parks.
- Sporting events like hockey, cricket, tennis, etc.
- Television services like Dish TV, Tata Sky, etc.
Since entertainment tax is levied by the state government it may vary from state to state.
Normally, the Government imposes an Anti-Dumping duty on various foreign imports when the Government believes the products are priced far below the fair market value. Since the domestic companies will suffer in spite of cheap imports, the government imposes the anti-dumping duty to protect the domestic companies. In the recent past, the Government of India has imposed anti-dumping duty on rubber products such as tyres, solar cells to protect the domestic industries.
Since the municipal tax is levied by the municipal authorities, there are no uniform rates for municipal taxes. Normally Municipal taxes are levied on the tangible property in accordance with the area, construction, property size, building, etc. The amount collected from the property owner is mainly used for the construction of schools, building, sanitation services, repairing of a road, etc. in that municipal jurisdiction.
Stamp Duty, Registration fee on property
If you are planning to buy a property or land you need to pay stamp duty in addition to the amount quoted by the seller. Under section 3 of the Indian Stamp Act, 1899 a state government is enabled to levy registration fee as well as stamp duty and collect from any individual while registration of property. You need to pay a registration fee between 7% and 10% of the total market value of the property. In addition to this, you need to pay an additional 1% as registration fee. Again, if you transfer property to another person then you need to pay stamp duty.
In order to meet the expenditures incurred on building highways and to boost the infrastructure of the country which cost millions to the Government of India, government charges toll tax from people who use the highways.
Usually, state government levies entry tax on the movement of goods from one state to another state. The Entry tax is applicable to dealers, industrial or commercial goods producers.
Goods and Services Tax
The Goods and Service Tax (GST) is nothing but a single tax which combines separate taxes in the central or state level. Before the advent of GST in the Indian economy, there were 17 different types of indirect taxes of central and state government.
Let’s illustrate, according to the earlier system when a pen is produced in West Bengal the first tax levied on the pen is central excise then production tax, additional central excise, etc. When the pen reaches to the market and sold by a retailer then VAT is levied and the final price is fixed. Now, when the same pen is sold in another state like New Delhi, then on that price the respective state government levies entry tax, purchase Tax, VAT, etc. So the pen gets costlier in New Delhi than in West Bengal. In the regime of GST, all these 17 types of taxes have been abolished and replaced with one single taxation system named GST whatever the tax brackets are.
In order to finance the cost of education run by the government-sponsored programmes, education cess is levied by the central government at a rate of 2%. In addition to education cess, another 1% cess is levied to finance higher secondary and higher education. Currently irrespective of corporate or individual all are liable to pay a 3% education cess.
Krishi Kalyan cess
In order to finance the improvement of agriculture and welfare of the farmers, Krishi Kalyan cess is levied by the Union government on all services or goods at the rate of 0.5%. Any individual or non-individual is liable to pay the Krishi Kalyan cess at the rate of 0.5%.
Swatch Bharat cess
In order to finance the utilization to promote Swachh Bharat Movement Swachh Bharat cess is levied by the Union government on all goods or services which are not exempted from Service Tax. A Swachh Bharat cess is levied at the rate of 0.5% in addition to Service Tax.
In order to finance to boost the infrastructure, Union Government imposes an infrastructure cess on the production of the vehicles. This Infrastructure cess varies depending on the type and capacity of the vehicle. The rate varies between 1% and 4%.
- Read also: 29 Tax free income sources in India
- Read also: Advance Tax – Definition, Due Dates, Calculation
Let me know if I have missed or overlooked any other tax. You can make a comment so that I can add the types of taxes in India which will help millions. If you have found this post helpful feel free to share with your loved ones.