Tax Structure India - Income Tax Slabs & Rates
This article provides an overview of the tax structure and current tax rates in India. India has a well-developed tax structure with clearly demarcated authority between Central and State Governments and local bodies. Tax Structure present in India is very strong and it follows the financial year. The taxation is applicable for any kind of income pertaining to any person working as an employee anywhere in India at any level. Different types of taxes levied under tax structure in India are listed below.
- Direct Taxes
- Personal Income Tax
- Tax on Corporate Income
- Tax Incentives
- Securities Transaction Tax
- Service Tax
- Excise Duty
- Customs Duty
- Capital Gains Tax
- Indirect Taxes
- Sales Tax or Value Added Tax
Different Heads of Income under Tax Structure in India:
- House Property
- Profit in business or profession
- Capital gains by sale of immovable assets etc
- Other sources
Different types of tax exemption schemes under Indian Tax Structure:
- Exemption on income spent for higher educational purpose
- Exemption on income spent on the treatment of a diseased person if he/she is dependent
- Exemption on income that is spent as contribution towards provident fund, insurance policies, etc
- Exemption on the income that is spent on buying national savings certificates as well as investments in other government based savings schemes
- Exemption on income of a disabled person
- Exemption on income spent for payment of interest on loan
Taxes Levied by the Central Government of India
The Central Indian Government that is officially named as the "Union Government" is responsible for the imposition of both direct taxes as well indirect taxes. Listed below are some of the taxes that are levied by the India Government along with detailed explanation of each type of tax.
A tax that is paid directly by an individual or organization to the imposing entity. A taxpayer pays a direct tax to a government for different purposes, including real property tax, personal property tax, income tax or taxes on assets. Direct taxes are different from indirect taxes, where the tax is levied on one entity, such as a seller, and paid by another, such a sales tax paid by the buyer in a retail setting. A direct tax cannot be shifted to another individual or entity. The individual or organization upon which the tax is levied is responsible for the fulfillment of the tax payment. Indirect taxes, on the other hand, can be shifted from one taxpayer to another.
Types of Direct Taxes:
- Income Tax: Income tax is collected on all incomes received by private individuals after certain allowances are made. In most of the economies Income tax is a major source of Government revenue.
- Corporation Tax: This tax is levied on profits earned by companies. It is a proportional tax which is levied at the constant rate.
- Petroleum Revenue Tax: It is a tax levied on the profits of companies involved in drilling of oil and gas. This tax may or may not exist in other countries.
- Capital Gains Tax: Capital gains tax is charged on the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations.
- Property Tax: Many countries have Property tax, or millage tax. It is the tax which the owner pays on the value of the property being taxed. The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.
- Stamp Duty: Stamp duty is a form of tax that is levied on documents relating to immovable property, stocks and shares. Apart from transfers of shares and securities, stamp duties are also charged on the issue of bearer instruments and certain transactions involving partnerships.
Government has to perform many functions in the discharge of its duties like infrastructure development, health, education, defense of the country, removal of poverty, maintenance of law and order, etc. To meet these requirements huge amount of capital is required. The government collects money from public through a wide variety of sources i.e. fees, fines, surcharges and taxes. Indirect Tax is a tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products. The Ministry of Finance (Department of Revenue) through the Central Board of Excise and Customs (CBEC), an apex indirect tax authority, implements and administers excise (central excise), customs and service tax laws. Circulars, notifications and clarifications issued by the CBEC supplement these indirect tax laws.
Types of Indirect Taxes:
- Service Tax: Service providers in India are subject to service tax, which is charged on the aggregate amount received by the service provider. Services like leasing, internet/voice, transport, etc are subject to service tax.
- Custom Duty: Custom duties are indirect taxes which are levied on goods imported to/exported from India. There are different rules for different types of goods and sectors. Government keeps on changing these rates so as to promote import/export of specific goods.
- Excise Duty: Excise duties are indirect taxes which are levied on goods manufactured in India for domestic consumption. Like custom duty, there are a number of rules which keep on changing as per government discretion.
- Sales Tax and VAT: Sales tax is levied by the government on sale and purchase of products in Indian market. As customers, whatever you buy from the market, you pay sales tax on it. Now, sales tax is supplemented with new Value Added Tax so as to make it uniform across country.
- Security Transaction Tax (STT): STT is levied on transactions (sale/purchase) done through the stock exchanges. STT is applicable on purchase or sale of various financial products like stocks, derivatives, mutual funds etc.
- Stamp Duty: This is an indirect tax charged by state governments on the transfer of immovable property within their jurisdiction. In addition, stamp duty is mandatory on all types of legal documents. Its rates vary from one state to another.
- Entertainment Tax: The state governments charge such tax on every transaction related to entertainment. Some examples are movie tickets, video game arcades, stage shows, exhibitions, amusement parks, and sports-related activities.
Four benefits of indirect taxes as opposed to direct taxes are:
- Contribution by the poor: The poor people are exempt from indirect taxes and this is the only way of reaching this section of the society. This meets the basic principle of making every person pay towards the growth of the country through the state governments.
- Convenient: Taxpayers are not burdened with the indirect taxes because these are paid only while making purchases. Furthermore, it is convenient for the state authorities because the taxes are directly collected at the factories or the ports, which saves time as well as effort.
- Easy collection: The collection of all these taxes is automatically performed during the selling and purchasing goods and services. This helps the authorities collect taxes easily while reducing the possibility of tax evasion.
- Equitable: Indirect tax is directly related to the prices of the goods and services. Therefore, rich people purchasing luxury items pay higher taxes and vice versa.
Three disadvantages of direct taxes are:
- Regressive: Not all taxes are equitable. Certain taxes, like that imposed on salt, are regressive because the same amount of tax is levied irrespective of the economic status of the buyer.
- Uncertain: Only taxes imposed on necessary goods and services have some certainty. Taxes levied on goods and services having an elastic demand are not predictable and may not earn huge revenues for the authorities.
- Not industry-friendly: When tax is imposed on raw materials, it acts as a detriment to manufacturers using the same, thereby making it unfriendly. Furthermore, it increases the cost of production, which results in higher prices of the goods.
Because there are numerous indirect taxes in India, the buyers pay higher prices for goods and services. The Government is proposing combining various taxes under a single tax known as Goods and Service Tax (GST). Merging different taxes is expected to improve governance and reduce the complexities of complying with multiple rules and regulations.