Are you reeling under tax burden? Here is what all you pay to govt
July, 14th 2016
Taxes are payments you make to the government. Or, as Benjamin Franklin said, taxes are the only certain thing in the world apart from death.
Taxes are compulsory contribution to the state’s coffers imposed on individuals and businesses. It is how the state earns its revenues and uses it to fund various wings of the elected government responsible for dispensing essential functions to augment economic growth and ensure well-being of the citizenry.
India has a well-developed tax structure, and the tax-collection responsibility is divided between central, state and local authorities. But taxation is also a complicated and perplexing topic for the layman. Apart from income tax, we pay several other varieties of tax—and we don’t even know so many of them.
Let us take will take a look at the taxes applicable to us.
TYPES OF TAXES
Broadly, there are two kinds of taxes.
Direct tax: The tax directly paid to the government is called a direct tax. Some examples include income tax, capital gains tax, security transaction tax, etc.
Indirect tax: These are fees paid indirectly to the government. For instance, the tax included in the price of goods we purchase, service tax on a restaurant bill etc. Sales tax, service tax, entertainment tax, are some of the examples of indirect tax.
Both these types of taxes are controlled by the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC).
TAXES PAID IN INDIA
These are some of the direct taxes paid by us.
1. Income Tax: This is applicable to a person whose total taxable income exceeds the basic exemption limit. Presently, the exemption limit is Rs. 2, 50,000/-
Who are liable to pay income tax? It could be an individual, a Hindu Undivided Family, a company, a firm, an association of persons, a local authority, or every artificial juridical person.
Tax is payable on the total taxable income earned by a payer during the previous financial year (Apil 1 to March 31). As per Indian Income Tax Act, total revenue is classified into five heads, viz: salary, income from house property, business income, capital gains, and income from other sources.
2. Capital Gains Tax: Profits from the sale of property, gold, machinery and bonds, etc. are taxable in India as Capital Gains Tax. However, such tax is not imposed every year. The tax is levied only in the year when an asset is sold. This means that tax for the profit earned from the sale of an asset needs to be paid only once, even if the said profit amount is spent over the course of several years. Capital gains tax is levied on both short-term gains as well as long-term gains, depending on the duration.
3) Perquisite Tax: Perquisite Tax applies to those employees who enjoy the perks or fringe benefits provided by their employers. Non-monetary benefits like cars, houses, club memberships, etc. are some examples of perks that require perquisite tax to be paid for them.
4) Securities Transaction Tax (STT): Such tax is imposed on either sale or purchase of several financial products such as mutual funds, stocks, derivatives, etc. Also, such taxes are already added to the security prices during the transaction. Therefore, this tax cannot be avoided.
5) Corporate Tax: These taxes are payable annually by corporate companies operating in India. The corporate businesses in India are categorised into domestic companies and foreign companies for taxation purpose. And here are the indirect ones:
1) VAT (Value Added Tax): VAT, an indirect tax is imposed by a state when goods are sold. It is, therefore, a state level tax. For instance, if goods are marketed in Rajasthan (Bikaner, Jaipur, Udaipur, etc.), the Rajasthan government imposes VAT on the goods sold. If goods are sold in Assam (Guwahati, Jorhat, Dibrugarh, etc.), then the VAT levied on these goods will be by the government in Assam, and so on. 2) Sales Tax: It is imposed by the government on the sale of products or services. Interstate sales tax is levied by the central government whereas intrastate sales tax is levied by the state government. The intrastate sales tax is known as VAT.
3) CST (Central Sales Tax): CST is collected by the central government wherein products are sold from one state to another state. For instance, a seller in Rajasthan sells goods to a buyer in Gujarat; CST would be applicable in this case.
4) Service Tax: Service Tax is yet another form of indirect tax imposed only on services provided. These services can include anything from fixing of electronic goods to serving a meal in a restaurant, etc.
5) Excise Duty: Excise duty is the tax imposed by the central government on all goods manufactured in the country. Excise duty is also known as Central Value Added Tax (CENVAT).
6) Customs Duty: Customs duty is imposed on goods that are imported from foreign countries to India. For instance, you purchase an item from an online store based in the US, and you are in India; in this case, you are importing the goods from the US. Therefore, custom duty is applicable on the item you purchased.
Here is another set of taxes that we pay.
1) Entertainment Tax: This is a state-level tax imposed on tickets for any entertainment shows such as for movies, amusement parks, stage shows, sports, etc.
2) Property Tax: The tax paid by a property owner annually is property tax. The rate of tax is decided by the local municipality depending on the size and the type of property; if it is commercial or residential land.
3) Professional Tax: State governments levy this tax. Professional tax is charged in most of the states in the country. Taxpayers who work in private firms pay this. The tax that is deducted on a monthly basis is then sent to the local municipal corporation by employer.
4) Gift Tax: If you receive a gift, and the value of the gift is above Rs.50,000 a year, whether the gift is in cash or kind, one needs to pay this tax. Conclusion: All taxes fall either under direct or indirect tax. Indirect taxes are not the same for all states and depend on the tax policy of the particular state. The taxes discussed above are just an overview of taxes applicable to you.