Local as well as central authorities collect taxes in India to generate revenue for the functioning of the state and central. Meanwhile, taxes are imposed on the Income, sale of goods, and services for a very long time.
What are you going to explore
- Introduction
- Types of taxes in India
- Sources of income in India
- How to save taxes in India
- Articles related to Goods and Service tax
- Conclusion
- FAQs
Introduction
The government levied a charge on income to generate revenue for the functioning and development of a country it is called Tax.
Since ancient times the tax system was implemented; Therefore Kings use to collect taxes (Kur) for the functioning of the empire. After that in the medieval period, the British started the imposition of tax in India.
After that, the Income-tax department was established in 1860 for the proper functioning of the taxation system. However, a person who pays the tax is called assessee. Therefore taxes in India are the prime source of revenue for a country.
Types of taxes in India
There are two types of taxes exist in India which are Direct tax and Indirect tax.
Direct Tax
To clarify when an assessee pays the tax directly is called a direct tax. However Direct taxes are progressive in nature that means the marginal rate of tax will increase with the increase in income.
Some direct taxes imposed in India:
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Income Tax
Likewise when an assessee pays the tax on the taxable income is called Income tax. However, Income tax is a progressive tax that means the marginal rate of tax will increase with the increase in income.
Wealth Tax
Similarly any assessee and “Karta” of Hindu undivided family with exceeding in the net worth of more than Rs. 50 lakhs have to pay a 1 percent tax on their wealth.
Wealth tax has been abolished in 2016.
Corporate Tax
When the central government imposes a tax on the profits of the company it is called a corporate tax.
Gift Tax
A gift worth more than 50 thousand rupees will be eligible for gift tax. The amount would be added to the recipient’s income and taxed under-slab rate.
Capital gain Tax
Any profit made by the sale of an asset is considered a capital gain. As a result capital gains can be long term as well as short term. the tax imposed on the profit received by the sale of an asset is called a capital gain tax.
Long term capital gain tax
Likewise, tax is levied on profit made by the purchase and sale of an asset after one year of holding it is called long term capital gain tax.
Short term capital gain tax
Similarly, a tax imposed on profit made by the purchase and sale of an asset within one year of holding it is called Short term capital gain tax.
Indirect tax
When the tax is imposed indirectly on the people it is considered indirect taxes. However, the final burden of the tax does not fall on the same person.
As a result, Indirect tax increases the price of goods and services. However Indirect tax is regressive in nature like property tax that means tax rate will decrease with an increase in income.
Goods and service tax
Goods and service tax (GST) is a tax on the value addition. However, It is an indirect tax and replaces all the major indirect taxes imposed by the central and state government in India since 1 July 2017. Therefore GST has three components.
Firstly rename of modified value-added tax in India. However, Central VAT has a uniform rate of 16%. the central government collected the Central VAT.
Meanwhile earlier the tax rates were 8%, 16%, and 24%.
Integrated Goods & Service Tax (IGST)
Integrated GST is charged with the interstate supply of goods and services. Meanwhile taxes paid in one state can be reimbursed in other states.
State Goods & Service Tax (SGST)
To clarify the state government collected state value-added tax or state goods and service taxes in India. So, traders have to pay this tax on the basis of the value of sales.
Sources of income in India
Income is categories of five types:
Salary Income
When the employer gives a commission or any payment on a monthly basis to employee service it is called income from salary.
So, Salary includes basic salary, allowances, perquisites, and profit in lieu of salary.
For Example: Ram is an engineer at ABC ltd. on 50,000 per month salary
Income from House property
Income received by renting a house, commercial property, or part of it is called income from house property.
For Example: Shyam gives rent of Rs. 5000 to Ram every month to live in his house.
Income from Business or Profession
Profit received by offering goods or services in the market is categorizing as income from a business.
For Example: Income received by sale of goods by a shopkeeper
Similarly, Income received by offering specialized services by professionals is called income from profession.
For Example: The doctor receiving his/her fees from the patient.
Income from Capital gains
Profit received by the sale of an asset is called income from capital. There are two types of capital gain long term capital gains and short term capital gains
For Example: Profit on sale of a house
Long term capital gains
Similarly, Profit earned from the sale of an asset after holding more than one year is long term capital gain.
Short term capital gains
Profit received from the sale of an asset within one year is short term capital gain.
Income from other sources
Income other than Salary, house property, business or profession, capital gains are considered as income from other sources.
For Example: Winning of a lottery.
NOTE: Sale of a house is a capital gain not income from house property.
How to save taxes in India
In 2020 union budget the government of India introduces two tax structure of filing an income tax return
1. By using new tax slabs but deductions made under VIA will not be applicable.
2. On the other hand by using old tax slabs and old clauses.
Meanwhile, taxes can be saved by good spending habits and legally by reliefs provided the government in terms of various deduction made under income tax act 1961:
Deductions under Sec
- 80C
This deduction is in respect of the life insurance policy, the contribution of provident fund, and public provident fund. Therefore this deduction can be avail by individual and H.U.F up to the limit of INR 1 lakh.
- 80D
This deduction is in respect of medical insurance premium paid payment modes other than cash. As a result, the deduction can be avail by individuals and H.U.F up to the limit of INR 15000 (dependent children + parents). In the case of senior citizen INR 20000.
- 80E
This deduction is in respect of payment of interest on education loans for higher studies. Therefore this deduction can be avail by an individual on the amount paid.
- 80G
This deduction is in respect of donations to approve funds in the form of money. Therefore this deduction can be avail by all assessees. 50% of the amount paid and in some exceptional cases 100% of the amount of donation.
- 80U
This deduction is in respect of the income of a disabled person. This deduction can be avail by resident individuals.
However, deductions can be made INR 50000 for disability and INR 100000 in case of severe disability. There are various other deductions in approx 19 ways to save tax in India.
Articles related to Goods and Service tax
246A – State Given the power to tax goods and services
269A – Money distribution as per GST council recommendations
270 – CGST (union portion of indirect taxes) will be distributed between union and state as per financial commission.
279 – President has to constitute Council in 60 days.
Conclusion
In this blog first of all we have discussed what is a tax. Different types of taxes in India. Further, we have discussed what are the different sources of income and how can someone save tax legally in India. At last, we have discussed some article relate to goods and service tax.
Also read: Inflation,
FAQs
No income tax is charged up to the income of INR 3 lakhs per annum.
Central and state governments collect the taxes in India.
All taxes are covered under state goods and services taxes.
For Example IGST and SGST
Maharashtra (being the financial capital of India)
Goods and Service Tax.
One who earns more than INR 3 lakhs is liable to pay income tax.
James Wilson in 1860 during British rule.
For existing companies 22% and for new companies 17.1% inclusive of surcharge source
Taxes which are collected directly
For example: Income tax, Corporate tax.
When the government collects tax indirectly it is an indirect tax.
For example Goods and service tax
There are two types of taxes in India, Direct and indirect.
For Example Income tax, GST
It is a contribution to the development and functioning of the country.
Taxes in India are the major source of revenue for the government, Therefore taxes hold a significant share in the economy of India.
GST replaces Excise duty, sales tax, services tax, customs duty, and other various indirect taxes in India.
Profit received by sale of asset is called a capital gain
For example: Sale of house
