Tax Structure in India!!! So guys, in the previous post, we have studied Inflation. Now, in this post, we shall read about the Tax Structure in India.
The tax structure in India is a three-tier federal structure. The central government, state governments, and local municipal bodies make up this structure. Article 265 of the constitution states that “No tax shall be levied or collected except by the authority of law”. Hence, each and every tax that is collected needs to back by an accompanying law. The Tax Structure in India is very complex in nature.
Direct Tax
A direct Tax is a kind of change, which is imposed directly on the taxpayer and paid directly to the government by the persons (juristic or natural) on whom it is imposed. A direct tax is one that can’t be shifted by the taxpayer to someone else. Some important direct taxes imposed in India are as under:-
Income Tax
Income-tax Act, 1961 imposes a tax on the income of the individuals or Hindu undivided families or firms or co-operative societies (other than companies) and trusts or every artificial juridical person. The inclusion of a particular income in the total income of a person for an income tax in India is based on his residential status, There are three residential status, which are
- Resident and Ordinary Residents
- Resident but not ordinarily Residents and
- Non Resident
There are several steps involved in determining the residential status of a person. All residents are taxable for all their income, including income outside India, Non-residents are taxable only for the income received in India or income accrued in India. Not ordinary residents are taxable in relation to income received in India or income accrued in India and income from business or profession controlled from India.
Corporation Tax
The companies and business organizations in India are taxed on the income from their worldwide transactions under the provision of the Income-tax Act,1961. A corporation is deemed to be resident in India if it is incorporated in India or if its control and management are situated entirely in India.
In the case of a non-resident corporation tax is levied on the income which is earned from their business transactions in India any other Indian sources depending on the bilateral agreement of that country.
Property Tax
Property Tax or house tax is a local tax on buildings, along with appurtenant land, and imposed owners. The tax power is the states and it is delegated by law to the local bodies, specifying the valuation method, rate band, and collection procedures.
Inheritance Tax
An Inheritance tax or death duty is a tax which arises on the death of an individual. It is a tax on the estate or total value of the money and property of a person who has died. India enforced estate duty from 1953 to 1985. on after 16th march, 1985 death tax has been abolished under the Estate Duty(Amendment) Act 1985.
Gift Tax
Gift tax in India is regulated by the Gift Tax Act which was constituted on 1st April 1958. It came into effect in all parts of the country except Jammu and Kashmir. As per the Gift Act, 1958 all gifts in excess of ₹ 25,000 in the form of cash, draft, check or others received from one who doesn’t have blood relations with the recipient were taxable.
On the 1st October 1998 gift tax got demolished and all the gifts made on or after the date were free from tax. but in 2004, the act was again revived partially. A new provision was introduced in the Income-tax Act 1961 under section 56(2). According to it, the gifts received by any individual or Hindu undivided family in excess of ₹ 50,000 in a year would be taxable.
Indirect Tax
An Indirect tax is a tax collected by an intermediary from the person who bears the ultimate economic burden of the tax. An Indirect tax is one that can be shifted by the taxpayer to someone else. It is one that is imposed on someone but borne by someone else.
An Indirect tax may increase the price of goods so that consumers are actually paying the tax by paying more for the products. Some important indirect taxes proposed in India are under as:-
Custom Duty
The custom act was formulated in 1962 to prevent illegal imports and exports of goods. Duties of customs are levied on goods imported or exported from India at the rate specified customs tariff Act, 1975 as amended from time to time or any other law for the time being in force.
Central Excise duty
The Central Government levies excise duty under the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985. Central excise duty is a tax that is charged on such excisable goods that are manufactured in India and are meant for domestic consumption.
Service Tax
The service provides in India except those in the state of Jammu and Kashmir are required to pay a service tax under the provision of the Finance Act of 1994. The interesting thing about service tax in India is that the Government depends heavily on the voluntary compliance of the service provides for collecting service tax in India.
Sales Tax
It is the Tax in India is a form of tax that is imposed by the government on the sale or purchases of a particular commodity within the country. Sales tax is imposed under both, central government (central sales tax) and state government (sales tax) legislation
Goods and Service Tax
In India, the three government bodies collected direct and indirect taxes until 1 July 2017 when the Goods and Services Act (GST) was implemented. GST incorporates many of the indirect taxes levied by states and the central government. The Tax Structure in India is very complex before GST.
Some of the taxes GST replaced include:
- Sales Tax
- Central Excise Duty
- Entertainment Tax
- Octroi
- Service Tax
- Purchase Tax
It is a multi-stage destination-based tax. Multi-stage because it is levied on each stage of the supply chain right from purchase of raw material to the sale of the finished product to the end consumer whenever there are value addition and each transfer of ownership.
Destination-based because the final purchase is the place whose government can collect GST. If a fridge is manufactured in Delhi but sold in Mumbai, the Maharashtra government collects GST.
A major benefit is the simplification of taxation in India for government bodies.
GST has three components:
- CGST-Stands for Central Goods and Services Act. The central government collects this tax on an intrastate supply of goods or services.
(Within Maharashtra) - SGST: Stands for State Goods and Services Tax. The state government collects this tax on an intrastate supply of goods or services.
(Within Maharashtra) - IGST: Stands for Integrated Goods and Services Tax. The central government collects this for inter-state sale of goods or services
Cess and Surcharge
Cess (Tax on Tax)
It is a temporary levy to achieve certain specific objectives. When the objective is realized it may be withdrawn like education cess is levied in India for promoting education on corporates and it is 3% on total tax and surcharge.
Surcharge
It is a tax on the tax imposed with the objective of removing inequalities. As those incomes above a certain level have to pay a surcharge. In India, there is a surcharge on those individuals who have an income of ₹ 10 million and above for corporates.
| Particulars | Taxable Income > 1cr | Taxable Income >10 cr |
| Domestic | 5% | 10% |
| Foreign | 2% | 5% |
Apart from this domestic companies pay 30% as Income tax whereas foreign companies pay 40% as Income tax.
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