Taxation Structure in India
India has a well-developed tax structure. Taxes are the Government’s way to generate revenue which can be used for different public purposes to boost the Indian Economy or people. Indian tax structure is based between the Direct Taxes (Income Taxes) and Indirect Taxes (At Central Government and State Government level.)
Taxes at Central Government Level
- Income Tax: Tax on the income of a person
- Custom Duties: Tax on import and export of goods
- Central Excise: Tax on dutiable goods
- Service Tax: Tax on Services provided solely or provided in bundle with goods
Taxes at State Government Level
- VAT(Value Added Tax): Tax on sale/transfer of goods
- Stamp Duties and Land Revenue: Taxes on transfer of immovable properties
- State Excise: Taxes on Liquor for human consumption and certain agriculture goods.
Direct taxes are also called the burden of taxation directly falls on the tax payer. These taxes are directly chargeable on an entity or individual and non-transferable to anyone else. Direct taxes includes-
Income Tax: Income tax, charged vide Section – 4 of Income-tax Act, 1961-2016, is a tax which is directly levied on income of the person if income exceeds the maximum amount which is not chargeable to taxand it is calculated on the annual income of a person earned during financial year basis (1st April to 31st March).
Corporate Tax: Corporate tax is an income tax which is paid by the company from the revenue they earn. Companies includes domestic companies which are registered under Companies Act 1956, and are liable to pay Income tax on taxable income and companies also includes Foreign companies whose proportionate income which accrue or arise in India or in connection with Indiaaretaxable. On the other hand Indian companies are taxable on their Income.
Wealth Tax: Wealth tax has been discontinued from assessment year 2016-17 and no longer required to be paid. Earlier It was leviable on a person’s personal net wealth or assets chargeable @ 1% of net wealth that exceeds Rs. 30 Lakhs. It was also applicable on companies that have revenue of over 10 crore per annum.
Capital Gain Tax: Capital Gain Tax is a tax charged on the profits earned on transferof capital assets. To make it easy for taxation, capital gain tax is further divide to-
- Short Term Capital Asset: If the capital assets are held for not more than 36 months (in some cases it is 12 months) preceding the date of its transfer, it will be treated as short term capital asset.
- Long Terms Capital Asset: Inthis case if capital assets are held more than 36 months (in some cases it is 12 months)before its transfer it will be treated as short term capital asset.
Indirect Tax are those taxes which are paidby ultimate consumers indirectly when they buy goods or services as the burden of paying tax shifts with the product and ultimately ends with the person who consumes it. Indirect taxes consist of several type of taxes which are to be paid on manufacture, import, sale and even on purchase in certain cases. Indirect Taxes includes-
Sales Tax: Sales tax is levied by stategovernment on the sale of a product. Central government collectsthis tax fromthe seller of the product, who transfers it onto the buyer of the product with the tax added to the price of that product. It comprises of two taxes-
- Value Added Tax (VAT): Vat is the integral part of any country. VAT is a multi-level tax which is levied when goods are sold/transferred within the state, starting from raw material to final product and from manufacturer to consumer. VAT is paid by the seller only on the value added by him and the rest is paid by credit taken of vat paid by predecessor seller. It was introduced in 1999 and was implemented in April 2005.
- Central Sales Tax (CST): CST is also a tax on sale of goods but it is paid when goods are sold or transferred from one state to another. It can be paid using VAT credit but the buyer cannot use CST as credit to pay further.
Service Tax: Service Tax is an indirect tax levied on services other than those defined in negative list or specified otherwise. Services can be in a form of pure service where service tax is payable on 100% Invoice value (Ex- Professional services) or it can be bundled with sale of goods where some portion is service and rest is sale of goods (Ex- Works Contract). As we said Service tax is an Indirect tax, Service providers pays the tax to government and recover it from the service receiver. Current base rate of service tax is 15% including 0.5% KrishiKalyan Cess and 0.5% Swacchh Bharat Cess.
Excise Duty: Excise Duty is payableon manufacture of excisable goods in India. It is collected by the Government when manufactured goods are being removed from the factory or other place as prescribed. These taxes are added to the cost when it reached to ultimate consumer.
Custom Duty &Octroi: Custom Duty is levied on imports and exports of goods from/to outside India. It is applicable irrespective that it comes in/goes out via land, sea or air. Octroiis paid when goods are crossing state borders, within India as an entry tax from that state.
Here we brief the taxation structure in India. If you want to know more or have some tax related queries visit us at Easystart.