Home Education Taxes In India - A Contribution Towards Economic Development

Taxes In India – A Contribution Towards Economic Development

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

  1. Introduction
  2. Types of taxes in India
  3. Sources of income in India
  4. How to save taxes in India
  5. Articles related to Goods and Service tax
  6. Conclusion
  7. 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

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.

direct tax graph

Some direct taxes imposed in India:

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.

indirect tax graph

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

Tax deduction infographic img


  1. 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.

  2. 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.

  3. 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.    

  4. 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.

  5. 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.

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

How much income tax on INR 2.50 lakhs per annum?

No income tax is charged up to the income of INR 3 lakhs per annum.

Who collects taxes in India?

Central and state governments collect the taxes in India.

What are state taxes in India?

All taxes are covered under state goods and services taxes.
For Example IGST and SGST

Which state pays the highest taxes in India?

Maharashtra (being the financial capital of India)

Full form of GST?

Goods and Service Tax.

Who should pay income tax in India?

One who earns more than INR 3 lakhs is liable to pay income tax.

When and who introduced income tax in India?

James Wilson in 1860 during British rule.

What are corporate taxes in India?

For existing companies 22% and for new companies 17.1% inclusive of surcharge source

What direct taxes in India?

Taxes which are collected directly
For example: Income tax, Corporate tax.

Define indirect taxes?

When the government collects tax indirectly it is an indirect tax.
For example Goods and service tax

What are taxes in India?

There are two types of taxes in India, Direct and indirect.
For Example Income tax, GST

Why do we pay taxes in India?

It is a contribution to the development and functioning of the country.

Why taxes are high in India?

Taxes in India are the major source of revenue for the government, Therefore taxes hold a significant share in the economy of India.

Which taxes will GST replace in India?

GST replaces Excise duty, sales tax, services tax, customs duty, and other various indirect taxes in India.

What is capital gain?

Profit received by sale of asset is called a capital gain
For example: Sale of house

RELATED ARTICLES

5 Best Laptops Under 60000 Suitable To Your Profession

Today we live in the era of the internet in which laptops and mobile phones play an important role. So if you...

5 Best Inverters to Buy This Year | How to Choose the Right Inverter

We all know inverters are useful for getting backup of electricity, but fewer people know about all features and types. If you...

Top Selling Best Budget Smartphones That You Can Buy This Year

Are you planning to buy a smartphone? Or Looking for a budget smartphones with the best features?  Almost everyone is stuck with...

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

5 Best Laptops Under 60000 Suitable To Your Profession

Today we live in the era of the internet in which laptops and mobile phones play an important role. So if you...

5 Best Inverters to Buy This Year | How to Choose the Right Inverter

We all know inverters are useful for getting backup of electricity, but fewer people know about all features and types. If you...

Top Selling Best Budget Smartphones That You Can Buy This Year

Are you planning to buy a smartphone? Or Looking for a budget smartphones with the best features?  Almost everyone is stuck with...

Top 10 Network Marketing Companies in India | Future of MLM Business

Everybody knows about marketing that it is an essential part of a business. It is essential to promote our product to others...

Recent Comments