To run a nation judiciously, the government needs to collect tax from the eligible citizens; paying taxes to the local government is an integral part of everyone’s life, no matter where we live in the world. Now, taxes can be collected in any form such as state taxes, central government taxes, direct taxes, indirect taxes, and much more. For your ease, let’s divided the types of taxation in India into two categories, viz. direct taxes and indirect taxes. This segregation is based on how the tax is being paid to the government.
A tax is a mandatory fee or financial charge levied by any government on an individual or an organization to collect revenue for public works providing the best facilities and infrastructure. The collected fund is then used to fund different public expenditure programs. If one fails to pay the taxes or refuse to contribute towards it will invite serious implications under the pre-defined law.
Types of Taxes
Be it an individual or any business/organization, all have to pay the respective taxes in various forms. These taxes are further subcategorized into direct and indirect taxes depending on the manner in which they are paid to the taxation authorities. Let us delve deeper into both types of tax in detail:
Direct Taxes : The definition of direct tax is hidden in its name which implies that this tax is paid directly to the government by the taxpayer. The general examples of this type of tax in India are Income Tax and Wealth Tax. From the government’s perspective, estimating tax earnings from direct taxes is relatively easy as it bears a direct correlation to the income or wealth of the registered taxpayers.
Indirect Taxes : Indirect taxes are slightly different from direct taxes and the collection method is also a bit different. These taxes are consumption-based that are applied to goods or services when they are bought and sold. The indirect tax payment is received by the government from the seller of goods/services. The seller, in turn, passes the tax on to the end-user i.e. buyer of the good/service. Thus the name indirect tax as the end-user of the good/service does not pay the tax directly to the government. Some general examples of indirect tax include sales tax, Goods and Services Tax (GST), Value Added Tax (VAT), etc.
What is Income Tax?
The most common type of tax that eligible citizens have to pay to the government. A part of your income is paid to the government every year and the government uses this money to fund support the growth and development activities across the country.
Any individual who is liable to file taxes and fall in the payable income tax slab is an income tax assessee. An individual who is having a regular income is exempted from paying tax if his/her include annual income is below the threshold level determined by the government from time to time or income from exempted sources such as agriculture.
Income Tax Slabs
As mentioned earlier, not all individuals shall pay the same amount of tax; the general rule is – the higher your income, the higher amount of tax you will have to pay. In order to ensure that tax rates and rules are fair rather than uniform, the government uses income tax slabs to determine the rate at which each individual tax assessee is liable to pay income tax.
Income Tax Deductions
Citizens having taxable income in excess of Rs. ₹ 2.5 lakhs are liable to pay income tax as per their applicable slab. However, there are a few tax savings options such as ELSS, Mutual Funds, PPF, EPF, tax saver fixed deposits, and others that can be used to reduce the income tax payable by the individual. A majority of these tax saving schemes are available under section 80C and 80D of the Income Tax Act, 1961.
Tax Deducted at Source
TDS, short for Tax Deducted at Source is considered as one of the most common ways of deducting tax by the government from any salaried individual. Other cases of TDS can be seen in the case of interest provided on fixed deposits. However, in this case, also, the tax assessee can get a refund after filing the Income Tax Return (ITR).
Comments