Taxation in India can be divided into three categories: direct, indirect, and other taxes.
This type of taxation requires direct transitions. An individual or an entity directly pays taxes to the government, and it is regulated by the Central Board of Direct Taxes (CBDT).
Here are some examples of direct taxes.
Income Tax: As we have briefly discussed, an individual or a legal entity is liable to pay income tax on the annual income in a fiscal year. An individual is liable to income tax as per his or her annual income.
You are not liable for income tax payment if you are younger than 60 years and earn ₹2.5 lakh a year. For senior citizens, annual income up to ₹3 lakh is tax exempted. We hope it simplifies the income tax meaning to you.
Capital Gain Tax: You will only need to pay capital gain tax if you have earned a profit by selling stocks (mutual funds) or a property. There are two types of capital gain taxes — Long-Term and Short Term Capital Gain Taxes. These taxes vary depending on the tenure of your investment.
Prerequisite Tax: Many employees receive perks from their company on top of their salary, like fuel reimbursement, food coupons, fuel reimbursement, etc. Payments under such components are taxed separately under Prerequisite Tax.
Securities Transaction Tax: A security transaction tax is paid at the time of stock market trading. If you are buying or selling a stock or security in the Indian stock market, you need to pay STT or Security Transaction tax.
Corporate Tax: Companies pay this tax directly to the government as per the tax rate, depending on their annual revenue.
Indirect taxes are different from direct taxes. Indirect taxes are consumption-based taxes and are not paid directly to the government. Every time you buy goods or services, their prices include a tax. The consumer pays the tax to the seller by paying the price that is inclusive of all taxes, and the government collects it from the seller of goods or services.
The most important indirect tax in India is GST @ .
Good and Service Tax (GST): GST is a consumption tax included in the final price of a service or product. Before the GST was introduced, there were multiple taxes, and often, business owners ended up paying taxes on taxes. It is known as the cascading effect of taxes. The implementation of GST abolished this cascading effect.
Apart from the direct and indirect taxes, there are several other taxes in India. These taxes are levied on services, goods, and assets. These taxes include entertainment, municipal, property, and professional taxes, etc.
You have to pay a tax while registering a property or transferring its ownership. Both the centre and the state levy these taxes, and these are direct taxes. Example: Transfer Tax, Stamp Duty, and Registration Fees.
The government also collects cess on under different heads and for different purposes. A cess is applied to your final tax liability.
There are also taxes, like road tax, tolls, municipal taxes, etc.