Tax is the charge levied upon the citizens by the government to generate income which will then be invested in various schemes and projects for the overall development of the country. The Constitution of India allocates the authority to impose and collect the tax to central and state government. According to Article 265 of the Indian Constitution, no tax shall be levied or collected by anyone but by the authority of law. Hence, every tax charged from citizens should have the backing of law either passed by Parliament or State Legislature.
There are two types of taxes levied by the government:
The Income Tax Act of 1961 and Wealth Tax Act of 1957 govern direct taxes. These two legislations were proposed to be replaced by a new legislation, Direct Tax Code. The proposition was, however, dropped and Wealth Tax Act was repealed in 2015.
Ever since 2015, Income Tax Act has been the major source of Direct Tax excised from citizens apart from Wealth Tax, Corporation Tax, and others.
Central Board of Direct Taxes or the CBDT oversees the direct taxation system in India. CBDT was formed by Central Board of Revenue Tax, 1924 and it is responsible for administering direct tax laws under the Department of Revenue in the Ministry of Finance.
CBDT provides input and suggestion on the policies related to direct taxation and it also governs the execution of the policies in India. CBDT is headed by a chairman and consists of six members who act as Special Secretary to the Indian Government.
Various Acts that Govern Direct Tax are as follows:
The Income Tax Act (IT Act) of 1961 is the law that governs income tax in India. As per this act, the taxable income of an individual can be earnings from any source such as; salary, business, property gains etc. This tax also defines the tax benefit on fixed deposit and life insurance premium. Income Tax Act provides parameters under which one can save on their income by investing and determining one’s income tax bracket.
The Wealth Tax Act was introduced in 1957 and it administers the taxation on the net wealth of individual, company or Hindu United Families (HUF). As per this act if the net wealth exceeds Rupees 30 Lakhs, then 1% of that excess amount will be payable. This Act was repealed in Budget of 2015 and was not leviable from the assessment year 2016-17. This was replaced with an extra charge of 12% on the income of the taxpayer earning more than Rupees 1 crore per annum as well as companies with an annual turnover of Rupees 10 crore or more. This resulted in a drastic increase in the fund of the government.
The Gift Tax Act was introduced in 1958. According to this act, 30% tax was levied on any valuable or monetary gift received by an individual. This act was abolished in 1998. As per the new rules any property, jewellery, shares etc. which is given as a gift or inherited from family members like parents, grandparents, siblings, spouses, uncles, aunts or is gifted by local authorities is exempted from tax. Apart from the exempted entities any gift received with a value more than Rupees 50,000 is taxable.
Expenditure Act came into existence in the year 1987 and it is applicable all over India except in Jammu and Kashmir. This act deals with any expenses an individual may procure while availing services provided by a hotel or restaurant. According to this act certain expenses, if they exceed the amount of Rupees 3,000 are taxable in case of a hotel and all the expenses incurred in case of the restaurant are chargeable.
The Interest Act came into action in 1974. According to this act, the interest earned under a specific situation is taxable. This tax is applicable to the whole of India, including all the Union Territories. This tax was abolished in 2000, and thus the tax on the interest is no more chargeable.
Direct taxes are of various types. The different direct taxes that are paid by a citizen directly to the government are listed below:
The taxable income of an individual assessee is calculated as:
Income tax is chargeable under the following:
There are three sub-taxes under Corporate Tax:
Capital gain tax is a tax levied on the income received from the sale of a capital asset or investment. The capital investment or assets include house property, farms, businesses, artifacts, jewellery etc. Capital gains tax is of two types: Long-term capital gains and short-term capital gains.
Capital gains can be calculated as; Capital gains = money received from sale – cost of capital investment .
Trade in security is a very good method of making money. The money earned from this is taxable under different tax called Securities Transaction Tax, which was introduced in 2004 by the Finance Minister. This tax is charged by adding the payable tax to the price of shares. It implies that on every trade of shares, an individual pays tax.
Perquisite refers to all the benefits and perks that an employer may decide to share with the employees. Under these privileges, a company may decide to provide a house, a car, or other compensations like phone bill and fuel bill reimbursement to the employees. This tax is levied by deciphering how the benefit is acquired by the company or how it is utilized by the employee. For example, if the company provides a vehicle to the employee for official use, it is not taxable. But if the vehicle is given for both personal and official use, then tax will be levied on it.
Following are the tax brackets for the income tax levied on the individuals:
For residents between 60 and 80 years of age:
For the residents of more than 80 years of age:
10% of surcharge is taxed on the income between 50 Lakhs and 1 core INR and 15% of income tax on the income of more than 1 crore INR.
Cess is charged at 3% on the income tax + surcharge.
Amounts invested in specific schemes like EPF, PPF, NSC, Tax Saving FDs, etc. are eligible for a deduction of up to Rs. 1,50,000 per year under Section 80C.
The rate of corporate tax levied on domestic companies:
Corporate Tax on International Companies: