The Legal Aspect of Taxation in India

With time, India has both eliminated and added new levies. Among these taxes is inheritance tax, interest tax, gift tax, wealth tax, etc. 2015 saw the abolition of the 1957 Wealth Tax Act. The Income Tax Act of 1961 and the Wealth Tax Act of 1957 were the two main pieces of law that handled India's direct taxes. The Direct Tax Code (DTC), a new piece of law, was put forth to take the place of the two acts. The Wealth Tax Act was, however, abolished in 2015, and the DTC concept was abandoned.

What is Taxation in India?

Under India's system of taxation, the central government and the state governments each levy their own taxes. Local governments like the municipality and local governments also impose a few small levies.

To run the government and handle the activities of a state, money is required. As a result, the government levies various taxes on the earnings of individuals and businesses.

What is Tax?

A tax is a compulsory fee or financial charge imposed by a government on a person or an entity in order to raise money for public works projects that provide the greatest infrastructure and facilities. Afterward, several public expenditure projects are funded using the funds obtained.

Under the established law, there will be harsh repercussions if one fails to pay taxes or refuses to make contributions.

Types of Taxes

The two main types of taxes in India are those levied by the federal and state governments −

In India, direct taxes are taken out of your paycheck, and indirect taxes are taken out of your expenses. The earning party, whether an individual, HUF, or business, is accountable for depositing the direct tax liability.

The majority of indirect taxes are collected by corporations and companies that provide goods and services. Therefore, it is these entities' responsibility to submit indirect taxes.

Direct Tax

People's earnings or profits are subject to direct taxation. For instance, a taxpayer may pay taxes to the government for a variety of reasons, such as personal property tax, income tax, FBT, etc. The onus of bearing the load cannot be shifted; it must fall on the individual being taxed. The Central Board of Direct Taxes (CBDT) oversees and manages direct taxes.

Sub-Categories of Direct Tax

Income Tax

The direct tax subcategories are as follows −

This tax, which is paid directly to the government, is imposed on the annual income or profits. Everybody who receives income of any type is required to pay income tax.

The annual tax exemption threshold for people under 60 is Rs. 2.5 lakh. The maximum tax-exempt amount for people aged 60 to 80 is Rs. 3 lakh. The maximum amount of tax exemption for people over 80 is Rs. 5 lakh.For different income levels, there are various tax slabs.

Legal entities, in addition to persons, are required to pay taxes. The Hindu Undivided Family (HUF), the Body of Individuals (BOI), and the Association of People are among all artificial judicial persons (AOP).

Capital Gains

The sale of a property or the receipt of funds from an investment is subject to capital gains tax. It could come from an investment's long- or short-term capital gains. This encompasses any kind of trade that is measured against its value.

Securities Transaction Tax

STT is charged on the stock market and securities trade. Taxes are assessed on both the share price and the value of securities traded on the Indian Stock Exchange (ISE).

Prerequisites Tax

These taxes are imposed on the many perks and benefits that an employer offers to its staff.

Corporate Tax

Corporate tax is the term used to describe the income tax that businesses pay. It is based on the various tax brackets that the revenue belongs to. The following are the corporate tax subcategories −

• Dividend Distribution Tax (DDT) − This tax is imposed on dividend payments made by corporations to their shareholders. It relates to the gross or net return on investment that an investor obtains.

• The FBT (fringe benefit tax) − It is a tax imposed on the extras that an employee receives from their employer. These costs cover things like lodging, transportation, leave travel reimbursement, entertainment, employee contributions to retirement funds, employee welfare, the Employee Stock Ownership Plan (ESOP), etc.

• Minimum Alternative Tax (MAT) − Businesses pay the IT Department through the Minimum Alternative Tax (MAT), which is controlled by Section 115JA of the IT Act. Businesses that operate in the infrastructure and power industries are exempt from MAT.

Indirect Tax

The government, on the other hand, imposes an indirect tax on products and services. It can therefore be transferred from one taxpayer to another. For instance, the wholesaler may distribute it to merchants, who will subsequently distribute it to clients. As a result, indirect taxes are primarily paid by consumers. The Central Board of Indirect Taxes regulates and oversees indirect taxes.

Other Taxes

Some taxes, such as small cess taxes, only generate modest amounts of income. The following are the numerous other tax subcategories −

• Property Tax − Real estate tax and municipal tax are other names for property tax. Property owners, whether residential or commercial, must pay property taxes. Several of the basic civil services are maintained with its help.

  The municipal entities headquartered in each city impose a property tax.

• Professional Tax − Legal professionals, chartered accountants, physicians, and other professionals who receive a salary are subject to the professional employment tax. State-by-state variations exist for this tax. Several states do not impose a professional tax.

• Entertainment Tax −The entertainment tax is a levy on things like movies, television shows, exhibitions, etc.

• Registration Fees, Stamp Duty, and Transfer Tax − When a property is purchased, registration fees, stamp duty, and transfer tax are collected in addition to or as a supplement to the property tax.

• Education Cess −This tax is used to support the government of India's initiatives and ongoing support for educational initiatives.

• Entrance tax −This tax, which is applicable in the states of Delhi, Assam, Gujarat, Madhya Pradesh, etc., is imposed on items or products that enter a state, notably through e-commerce firms.

• Tolls and road taxes − Tolls and road taxes are used to maintain the toll infrastructure.

Benefits of Taxes

Taxes are levied to give the government money for inflation-free spending. The government uses taxes for many things, some of which include −

• Public infrastructure financing

• Welfare and development initiatives

• Defence spending

• Scientific study

• Public coverage

• Salaries of state and federal workers

Conclusion

The Taxation system of India is one of the most well defined and well-structured systems in India. Taxes are the largest source of income for the government so we can say that tax plays an essential role in the development of our country.

Frequently Asked Questions

Q1. What are the major types of tax in India?

Ans. The Central Government of India imposes taxes such as customs duty, central excise duty, income tax, and service tax.

Q2. What kind of tax is GST?

Ans. GST is one indirect tax for the whole nation, which will make India one unified common market. GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer.

Q3. How many types of GST are there?

Ans. CGST, SGST, and IGST are the types of GST that are currently used in India. This straightforward separation reduces indirect taxes by making it clear which supplies are interstate and which are intrastate. Read about these three various GST types for more information.

Q4. What is TDS in income tax?

Ans. Tax Deducted at Source (TDS) is its full name. According to this process, if a person (deductor) is required to pay someone else (deductee), tax will be withheld at the source and the remaining amount will be transferred to the deductee. The Central Government will receive the TDS deduction amount.

Q5. Who is tax-free in India?

Ans. The Income Tax Act's Section 10(1) states that farming and agricultural income is exempt from taxation. Also, money earned from businesses like raising cattle and poultry is tax-free. Everyone, however, must declare their agricultural revenue while paying their taxes.

Q6. Who pays high tax in India?

Ans. Reliance Industries, headed by billionaire Mukesh Ambani, is at the top with taxes paid of Rs 16,297 crore and a net profit of Rs 60,705 crore.