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Faster, easier and secure gateway to E-file income tax return

Indian Tax Basics

Indian Government has design tax implication to maintain earnings that will be used in various Government projects and strengthening Indian economy. In here, tax structures are decided by the Central and State Government in accordance with local authorities such as municipalities. However, any tax imposed by government must comply with the laws.

In India, two types of taxes can be found, Direct tax and Indirect tax. These taxes are different in the way of implementation as some are paid directly by the person and some are collected by other deductors who later submit it to the government. Other than theses two, some cess is recently introduced such as Swachh Bharat Cess, infrastructure Cess, and Krishi Kalyan Cess.

Benefits of Taxes

Taxes are designed to benefit government resources and economic development.

The benefits can be listed as below:

  • Encourage savings and investment from a person.
  • Helps in nation’s economic development.
  • Paying tax returns to strengthen your credit history which is much needed while applying for any loans.

Direct Tax

The tax that is directly paid by the taxpayer and levied on individuals and entities. Central Board of Direct Taxes or CBDT, a part of Department of Revenue looks after direct tax collection.

These taxes are maintained by the following acts:

Income Tax Act:

Much known as IT Act of 1961 which sets taxation rules in India. This act taxes income made from business or salary or house property or capital gains by individuals and businesses. This act also defines the rules of income tax slabs, tax benefits, tax exemptions, benefits on various investments like FDs or LICs.

Interest Tax Act:

This act was made on 1974 which govern the rules of tax payable on interest earned in specific situations. However, this tax act is not applicable on any interest earned after March 2000.

Expenditure Tax Act:

This act was introduced on 1987 and deals with the expenses incur in availing a hotel or restaurant services across India except J&K. this act charge expenses exceeding INR 3,000 made in a hotel or restaurant.

Gift Tax Act:

This act was introduced on 1958 and governs the tax imposed on giving and receiving gifts. The tax rate imposed on such gifts are 30% but was withdrawn on 1998. The new rule introduced was that if a gift is given by family members like brothers, sister, parents, spouse, aunts or uncles are non-taxable. Also, the gifts received from the local authorities are non-taxable. If any gifts item received from anyone other than the above person or authorities are taxable if the value exceeds INR 50,000.

Wealth Tax Act:

This tax Act was introduced on 1951 and was imposed on net wealth of any individual or company or HUFs. If net wealth exceeds INR 30 lakhs than 1% tax rate will be imposed on the amount over INR 30 lakhs. However, it was withdrawn on 2015 and replaced with 12% surcharge on income over INR 1 Cr by any individual. Also, business entities earning over INR 10 Crores per annum also fall under this rule.

Further explanation with example:

Income Tax:

It is applicable on both individuals and business entities and is directly connected to many facets such as tax slabs, tax deducted at source (TDS), taxable income, and reduction of taxable income. The tax rate depends on tax bracket the assesse falls in and the tax rate range from 30% to higher income groups. The newly introduced tax slabs for financial year 2017-18 are given below.

New Income Tax Slab Rates for FY 2017-18 (AY 2018-19)

Income tax slab for individual tax payers & HUF (less than 60 years old) (both men & women)

Income Tax Slab Tax Rate
Income up to INR 2,50,000* NIL
Income from INR 2,50,000 – INR 5,00,000 5%
Income from INR 5,00,000 – INR 10,00,000 20%
Income more than INR 10,00,000 30%
Surcharge:
  • 10% of income tax, where total income is between INR 50 lakhs and INR 1 crore.
  • 15% of income tax, where total income exceeds INR 1 crore.
Cess: 3% on total of income tax + surcharge.
* Income upto INR 2,50,000 is exempt from tax if you are less than 60 years old.

Income tax slab for individual tax payers & HUF (60 years old or more but less than 80 years old) (both men & women)

Income Tax Slab Tax Rate
Income up to INR 3,00,000* NIL
Income from INR 3,00,000 – INR 5,00,000 5%
Income from INR 5,00,000 – INR 10,00,000 20%
Income more than INR 10,00,000 30%
Surcharge:
  • 10% of income tax, where total income is between INR 50 lakhs and INR 1 crore.
  • 15% of income tax, where total income exceeds INR 1 crore.
Cess: 3% on total of income tax + surcharge.
* Income up to INR 3,00,000 is exempt from tax if you are more than 60 years but less than 80 years of age.

Income tax slab for super senior citizens (80 years old or more) (both men & women)

Income Tax Slab Tax Rate
Income up to INR 2,50,000* NIL
Income up to INR 5,00,000* NIL
Income from INR 5,00,000 – INR 10,00,000 20%
Income more than INR 10,00,000 30%
Surcharge:
  • 10% of income tax, where total income is between INR 50 lakhs and INR 1 crore.
  • 15% of income tax, where total income exceeds INR 1 crore.
Cess: 3% on total of income tax + surcharge.
* Income up to INR 5,00,000 is exempt from tax if you are more than 80 years old.

Below, you will find a few tables that list out Income Tax Slab Rates for FY 2016-17 (AY 2017-18) These income tax slab rates are also applicable for: FY 2015-16 (AY 2016-17) FY 2014-15 (AY 2015-16).

Income Tax Slab for General Taxpayers

Income Tax Slab Tax Rate
INR 0 - INR 2,50,000 NIL
INR 2,50,001 - INR 5,00,000 10%
INR 5,00,001 - INR 10,00, 000 20%
Above INR 10,00,000 30%

Income Tax Slab for Senior Citizens (Ages between 60 to 80 years)

Income Tax Slab Tax Rate
INR 0 - INR 3,00,000 No tax
INR 3,00,001 - INR 5,00,000 10%
INR 5,00,001 - INR 10,00, 000 20%
Above INR 10,00,000 30%

Income Tax Slab for Super Senior Citizens (Ages Above 80 years)

Income Tax Slab Tax Rate
INR 0 - INR 5,00,000 NIL
INR 5,00,001 - INR 10,00, 000 20%
Above INR 10,00,000 30%

Capital Gains Tax:

Capital gain is applicable when a sizable amount of money is received from an investment or property sale.

It is of two types:

  • Short term capital gains from investments held for 36 months or less
  • Long term capital gains from investments held for 36 months or months

Long term capital gain is taxed at a rate of 20% and short-term capital gain is taxed according to your income tax slab. The gain does not have to be in the form of money to get taxed but it can be a kind of exchange which will be taxed as per the exchange value.

Securities Transaction Tax:

This tax is levied on earnings made from stock market and trade in securities. This tax is levied on the price of the share and you need to pay tax when you sell your share. All securities have this tax attached to them on the Indian Stock Exchange.

Perquisite Tax:

This tax is levied on the facilities you get from your employers such as a house or a car or fuel or phone bills. However, the tax is only levied on the personal use you make out on these facilities, not on the official uses.

Corporate Tax:

This tax is levied on the revenue earned by the companies and the earnings are taxed as per the defined tax slabs. For domestic companies, earning less than INR 1 Cr need not pay any tax. For international companies with earning more than 10 million INR have to pay corporate tax at a rate of approximately 41.2%, however, tax slabs are also there.

Corporate tax are of four different types and they include:

  • Fringe Benefit Tax:

    However, this tax act was introduced on 1st April 2015 and was scrapped on 2009 Union Budget Section.

    This tax is levied on every fringe that employer provides to an employee and it covers a number of aspects:

    • LTA or Leave Travel Allowance
    • Employee welfare allowance
    • Accommodation and entertainment allowance
    • Any regular commute or commute related expense
    • Employer’s contribution to a certified retirement fund.
    • Employer Stock Option Plans or ESOPs

  • Minimum Alternative Tax:

    MAT or Minimum Alternative Tax is the minimum tax that every company has to pay which is 18.5% under section 115JA. However, companies working in infrastructure and power sectors are not liable to pay this tax. This tax can be carry forward with regular taxes during five subsequent years, however, that is subjected to certain conditions.

  • Dividend Distribution Tax:

    This tax is levied on the dividend companies pay to their investors and is applicable on the gross or net income that an investor receives from their investment. This tax is imposed at a rate of 15%.

  • Banking Cash Transaction Tax:

    This tax is levied on every debit/credit bank transaction at a rate of 0.1%. However, this tax has been nullified from 2005-2009 by then Finance Minister.

Indirect Tax

This type of taxes are levied on goods and services and they are referred as indirect tax as taxpayers do not pay it directly to the Government. Individuals pay it to the intermediary (the seller or the service provider) and they submit it to the government.

  • Service Tax:

    It is levied on services provided in India at a rate of 14%. It is imposed on the services provided on monthly or quarterly or yearly basis. For individuals, it is payable only after invoice issue but for service providers have to pay it at the very moment the invoice was raised regardless of the fact if the customer has paid the bill or not. However, in restaurants, service tax is imposed at a rate of 40% of the total bill.

  • Sales Tax:

    This tax is levied on product sale which is either sold inside India or imported to abroad. It is only imposed for one time on a product which means if the product is sold for the second time, then no service tax will be applicable on it. The tax rate varies for this specific tax in all the states of India and some states also levy some additional taxes such as turnover tax, purchase tax and works transaction tax with it. This is the largest revenue generator for the state governments.

  • Value Added Tax:

    Mostly known as VAT is levied on the supply chain, manufacturers, dealer, distributors and on the end user. The state governments decide the tax rate by themselves and that is why VAT rate is different in many states. Goods are classified in various schedules and if any good that is not listed under any schedule will have a VAT if 15%.

  • Excise Duty:

    This tax is levied on goods manufactured and produced in India and also referred as Central Value Added Tax or CENVAT. Central government collects this tax and it is recommended that any “excisable goods” are taxed under this rule. These excisable goods are not allowed to move without paying this duty from the place where they have been produced or manufactured.

  • Customs duty & Octroi:

    This duty is levied on any imported goods when any Indian buys it in here. This duty was designed to ensure that any imported stuff entering into India must be taxed and paid accordingly.

    Same as Customs duty, Octroi ensures that any goods crossing the state borders within India are taxed appropriately. It functions as same as the customs duty but it is collected by the state government.

Other Taxes

Other than direct and indirect taxes, there is also some other cess applicable in this country. These taxes were introduced to improve the infrastructure of the country's economy although they are not major revenue generatoINR Revenue collected by this cess and taxes are usually used for specific as per the discretion stated by the Finance Minister.

  • Swachh Bharat Cess:

    This Cess was imposed by the Government on 15th November 2015 at a rate of 0.5%. it is only levied on the goods and services that have 14% or above service tax. This tax is not applicable on services that are exempted from service tax or are listed under negative list. Consolidate Fund of India collect this cess and use for funding and promoting any government campaigns for Swachh Bharat initiatives. It is charged under separate item line on the invoice and it is totally independent of service tax.

  • Krishi Kalyan Cess:

    This cess was introduced on June 2016 and it was made to extend the scope of farmer’s welfare and to improve the agricultural facility. It is also charged at a rate of 0.5% and is charged the service tax and Swachh Bharat Cess.

  • Professional Tax:

    Also known as employment tax, is levied on earnings made from practicing a profession such as a doctor, chartered accountant, lawyer, or company secretary. It is collected by the state government and the rate differs from state to state.

  • Stamp Duty, Registration Fees, Transfer Tax:

    These are supplementary of property tax and an individual has to pay these duties while purchasing a property.

  • Property Tax - Municipal Tax:

    This tax is levied by the local municipal body and it is designed to provide basic civic services. All residential or commercial property owners are liable to Municipal Tax.

  • Education Cess / Surcharge:

    This tax is designed to cover the expenses of government-sponsored educational programs. It is imposed at a rate of 2% on individual’s/corporations/any people living in the country’s income.

  • Entertainment Tax:

    It is collected by the government on feature films, television series, exhibitions, amusement, and recreational parloINR It is levied on the income of business entities that makes commercial shows, film festival, and audience participation.

  • Gift Tax:

    This tax is levied on the gifts received from anyone except family members that costs more than INR 50,000.

  • Toll Tax & Road Tax:

    This tax is collected when you use any government made infrastructures such as roads and bridges at a very negligible amount. This fund is used for maintaining these infrastructures and ongoing project.

  • Entry Tax:

    This tax is levied by selected states such as Uttarakhand, Gujarat, Madhya Pradesh, Assam, and Delhi. Any items entering the state via e-commerce establishments are taxed at a rate from 5.5% to 10%.

  • Infrastructure Cess:

    This tax was introduced on June 2016 and applicable at a rate of 1% on petrol/LPG/CNG-driven motor vehicles. These vehicles must be 4 meters or less in length and 1200cc or less in engine capacity. If any vehicle is over 4 meters in length but has engines capacity of less than 1500cc have to pay a tax of 2.5%.

  • Wealth Tax:

    It is levied on the total asset of taxpayers and is levied by the government. However, it is no longer applicable from Budget 2015.

The penalty for Non-payment of Taxes

The penalty depends on the tax type you avoid to pay and it can be either cash or imprisonment or both. Sometimes the penalty amount is the total payable tax and interest charged on that amount.

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