India has a complex tax system with various taxes levied by the central and state governments. Understanding the different types of taxes and who pays them is crucial for individuals and businesses to manage their finances effectively. From income tax to customs duty, taxes on properties to excise duty, there are various taxes that individuals and entities in India need to be aware of. Each tax has its own set of rules and regulations, and the tax rates vary depending on the nature of the tax and the income or turnover of the taxpayer. In this blog, we will explore the different types of taxes in India and the categories of taxpayers for each tax.
Whether you are an individual or a business owner, this blog will provide you with a comprehensive understanding of the types of taxes in India and how they impact your finances.
Income tax is one of the most common types of taxes in India. It is a direct tax levied on the income of individuals, HUFs, companies, and other entities. The calculation of income tax on salary is based on the individual’s income slab. The new slab introduced in 2020-21 allows taxpayers to choose between the old and new tax regimes. The new income tax slab effective from AY 2023-24, offers lower tax rates but makes an assessee ineligible for most exemptions and deductions which were available under the old regime.
Goods and Services Tax (GST):
It applies to all businesses and individuals engaged in the supply of goods and services. The tax rate for GST varies depending on the nature of the goods or services supplied. GST has replaced indirect taxes such as excise duty, service tax, and VAT, making it a simpler and more unified tax system. GST is collected under 4 components namely CGST, SGST, IGST and UTGST.
Corporate tax is a direct tax levied on the income of companies registered in India. The tax rate for companies varies depending on their turnover. The tax rate is lower for smaller companies and startups, while larger companies are taxed at a higher rate. The government has also introduced a lower corporate tax rate for new manufacturing companies to promote the Make in India initiative.
Property tax is a tax levied by the local authorities on the property’s value. It applies to property owners based on the property’s location, size, and other factors. Property tax is a major source of revenue for the local authorities and is used for the development and maintenance of infrastructure such as roads, parks, and public services.
Wealth tax was a direct tax levied on the net wealth of an individual, including assets such as property, jewellery, shares, and cash in bank accounts. However, this tax was abolished in 2015 as it was found to be a difficult tax to implement and was not generating significant revenue for the government. As an alternate to wealth tax, Finance Minister introduced additional surcharge rates on taxable income.
Customs duty is an important type of tax levied by the Indian government on the import and export of goods. It is an indirect tax, which means that the tax burden is ultimately borne by the end consumer of the goods. The tax rate for customs duty varies depending on the nature and value of the goods being imported or exported. Customs duty is collected by the customs department of the government and is used to regulate the flow of goods in and out of the country. Importers and exporters are the primary taxpayers for customs duty, and the revenue generated from this tax is a significant source of revenue for the government.
Excise duty is one of the major types of taxes in India. It is an indirect tax levied on the production and sale of goods within India. The tax is payable by the manufacturers of goods and is included in the price of the product. Excise duty is levied on a wide range of goods, including petroleum products, tobacco products, alcohol, and automobiles. The tax rate for excise duty varies depending on the nature of the goods produced and their sale value. Excise duty is an important source of revenue for the government and is used for funding various developmental and welfare projects in the country.
Professional tax is a type of tax levied by the State governments on professionals such as doctors, lawyers, and chartered accountants. It is a form of direct tax that is imposed on individuals and entites engaged in certain businesses, professions and trades. The tax collected from the professional tax is used for the development and maintenance of infrastructure and other services provided by the State governments. The professional tax rate varies from state to state and is based on the income earned by the professional. Where employer-employee relation exists, employer is required to deduct professional tax from the salary of his/her employee and in cases where an individual earns through professional income, he/she has to deposit professional tax from their own pocket. Professional tax is an important source of revenue for State governments and plays a crucial role in their finances.
Entertainment tax is one of the indirect taxes levied by the State governments in India. It applies to entertainment activities such as movie tickets, amusement parks, and other events. The tax rate for entertainment tax varies depending on the state and the type of entertainment activity. The tax is payable by the event organizers or cinema hall owners. The state government uses the revenue generated from entertainment tax for the development of infrastructure and public services. In recent years, some states have abolished entertainment tax, while others have reduced the tax rate to promote the growth of the entertainment industry.
Individual taxpayers are individuals who earn income from various sources such as salary, business, profession, or capital gains. They are required to file income tax returns and pay taxes on their income. The income tax is calculated based on the income slab the individual falls under. The income tax slabs are revised every year by the government to reflect the changing economic conditions of the country.
Hindu Undivided Family (HUF):
Hindu Undivided Family (HUF) is a type of taxpayer that is unique to India. It is a family unit that consists of all persons lineally descended from a common ancestor and their wives and unmarried daughters. A HUF can earn income from various sources such as rental income, business, profession, or capital gains. The HUF is taxed as a separate entity, and the tax rate is similar to that of individual taxpayers.
Companies are a type of taxpayer that is registered under the Companies Act, of 2013. They are taxed as a separate legal entities, and the tax rate for companies varies depending on their turnover. Companies are required to file income tax returns and pay taxes on their income. The government has introduced a lower corporate tax rate for new manufacturing companies to promote the Make in India initiative.
Partnership firms are a type of taxpayer that is registered under the Indian Partnership Act of 1932. A partnership firm is formed by two or more persons who come together to carry on a business. The partners in the firm are taxed individually, and the tax rate is similar to that of individual taxpayers. The partnership firm is also required to file income tax returns and pay taxes on its income.
Limited Liability Partnership (LLP):
LLP is a type of taxpayer that is registered under the Limited Liability Partnership Act, of 2008. LLP is a hybrid form of partnership and company, where the partners have limited liability for the debts of the LLP. The LLP is taxed as a separate legal entity, and the tax rate is similar to that of partnership firms.
Trusts and Societies:
Trusts and societies are a type of taxpayer that is registered under the Indian Trusts Act of 1882 and the Societies Registration Act of 1860, respectively. They are non-profit organisations that carry out charitable or religious activities. Trusts and societies are taxed on their income, and the tax rate is similar to that of individual taxpayers.
Foreign nationals who earn income in India are also required to pay taxes in India. The tax rate for foreign nationals is similar to that of individual taxpayers. The income tax is calculated based on the income slab the foreign national falls under. The government has also introduced the Non-Resident Indian (NRI) Taxation scheme, which provides certain tax benefits to NRIs.
Non-Resident Indians (NRIs):
NRIs are Indian citizens who live and work abroad. They are required to pay taxes on the income they earn in India. The tax rate for NRIs is similar to that of individual taxpayers. The government has also introduced the NRI Taxation scheme, which provides certain tax benefits to NRIs.
Senior citizens who are 60 years or older are eligible for certain tax benefits. The income tax exemption limit for senior citizens is higher than that of other taxpayers. Senior citizens can also avail of tax deductions on certain expenses such as medical expenses, health insurance premiums, and interest income. The government has also introduced a higher tax deduction limit for senior citizens who earn interest income from deposits in banks and post offices.
Salaried employees are a type of taxpayer who earns income from their employment. They are required to pay taxes on their income, which is calculated based on the question that says how income tax is calculated on salary. , New slab regime would be considered w.e.f 01.04.2023 which provides lower tax rates for individuals with lower income levels. The new tax slab has been introduced to simplify the tax system and provide relief to the middle class.