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Understanding Taxes in India

What is tax?

A tax is a compulsory financial charge that is levied on persons earning income within a country. This charge is collected by the government for funding various public expenditures. It is believed that the government uses these taxes for the greater good of society. If a taxpayer fails to pay the taxes or tries to resist it, this act is considered as punishable crime. Taxes can increase or decrease prices of any goods and services according to fiscal policy (Fisacal policy is basically the taxes collected by the government to take care of the expenses for the coming financial year.)

Tax structures, in India, are decided by both the Union as well as State Governments. Municipal authorities can also impose marginal taxes. However, any tax imposed by the Government must follow the Constitutional principle of “No Taxation without Representation”.

Taxes can be classified into two main categories: Direct tax and Indirect tax. These taxes differ in their mode of implementation. Taxes that are paid directly by any individual or collected for a property fall under the category of direct tax. On the other hand, taxes that are collected or deducted indirectly by the government are called indirect taxes. Other than these two major taxes, there are various taxes which were recently introduced, ‘Swachh Bharat Cess’, ‘Infrastructure Cess’, and the ‘Krishi Kalyan Cess’ are among the minor taxes paid by the citizens.

Why am I taxed?

Taxes are quite important for the economic development of a country as the revenue collected as taxes is used to fund government expenditure and boost the economic growth.

Here are some Advantages of Tax: -

  • Taxes Encourage savings and make wise investments.
  • With revenue generated by taxes, the Government gets an opportunity to fund construction of infrastructures, works related to social welfare and various industry, that helps in economic development of the country.
  • Taxes are not only beneficial for the country, but it can be a blessing for an individual as well. Paying taxes and furnishing periodic returns consolidates your credit history which comes as a great help while applying for a loan.

What is Direct Tax?

Tax that is imposed on an individual or a property, which is different from the tax levied on a transaction is called the direct tax. The different types of taxes that fall under this category are Income Tax, Corporate Tax, Wealth Tax (Which is now abolished) etc.

Here is a detailed information about the various taxes taxes that fall under direct tax category: -

INCOME TAX

Income tax is one of the most common as well as important type of tax paid by an individual or a company for their income. It is directly charged to the payer and the at which it is charged varies every year depending on the annual income of the taxpayer.

It is charged to the companies, individuals, firms, co-operative societies, Hindu Undivided Families etc. This is tax which is imposed on the taxable income.

Income tax is chargeable on the income from various sources like house, property, business, capital gains etc. It differs on the basis of the taxpayer’s residency status.

CORPORATE TAX

This tax is imposed on the companies that run solo as separate entities from their shareholders. Foreign companies are taxed on the income that the gather from India. It is charged on royalties, interests, sale of assets in India. Corporate tax also includes Minimum Alternative Tax(MAT), this tax was introduced to bring zero tax companies under the umbrella of Income tax. It also includes Fringe Benefit Tax(FBT) which focuses on the minor benefits company gives to its employees. Dividend distribution Tax also falls under corporate tax as it is the tax levied on any amount paid as dividend by a domestic company. It includes Securities Transaction Tax(STT) which is levied on the on the taxable securities transaction.

WEALTH TAX

This is a tax which is levied on the jewellery, property, land meant for guest house etc…This Tax was applicable till 2015, In Union Budget 2016-2017, The Union Finance Minister Mr. Arun Jaitely declared the abolition of wealth tax.

CAPITAL GAINS TAX

This tax is levied on the income that is gained by selling assets or investments. Capital investments can be in the form of house, business, jewellery, land, works of art etc. It can be categorised as short-term gains (income from the sale of assets within 36months of acquisition) and long-term gains (income from the sale of assets after 36months of acquisition). It is the tax paid by the taxpayer once the property is sold.

ADVANTAGES OF DIRECT TAXATION
  • Direct tax can be moved, and an equitable sacrifice of gains can be achieved from all sections of the society by continues taxation.
  • Income tax and other forms of direct tax are not a problem for the government as they are collected at source with the help of TDS.
  • It gives a sense of certainty to both the taxpayer and the government as they know what is the amount that should be paid and collected.
  • When you are a taxpayer and pay it every time without fail you have got the rights to know how your money is used.
  • The government charges more tax to the upper strata of the society and uses the collected amount for the upliftment of the poor.

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.

This information is provided to you in the public interest courtesy of AllIndiaITR

In the News

  • All India ITR offers free income tax filing assistance for personnel of armed forces

    The Economic Times Wealth: Vikas Dahiya, founder and chief of tax compliance platform, All India ITR announced a free of cost tax returns solution for members of the Indian Armed Forces. Due to their disciplined schedules, annual tax returns become a hectic chore for servicemen. They need to repaid for their services to millions of citizens and this initiative will go a long way to alleviate the stresses in their service conditions.

    18th July 2017

    THE ECONOMIC TIMES

  • Now, file your tax returns with All India ITR mobile app

    Gadgets Now: Technology firms are gearing up to meet tax compliance deadlines with great fervour. All India ITR, an online tax compliance firm launched its e-filing app that works on both Android and iOS.

    14th June 2017

    Gadgets Now

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