Every so often, India’s working population jointly celebrates the liberty, freedom and power that come with being rewarded for a job well done. This gut-twisting warmth and excitement of achievement comes at different times through different channels for different people, but two things unite all types of earners in India – the feeling of achievement and success, and the slight pang of sadness that comes with noticing the amount isn’t really what you signed on for or expected.
So why isn’t the amount as much as it ought to be? What’s that deduction for?
It’s because of Income Tax, a type of direct tax which is levied by the Government of India on those whose income exceeds certain “slab” amounts.
Tax is a mandatory fee imposed upon individuals or corporations by the Central and the State Government to help build the economy of a country by meeting various public expenses. Taxes are broadly divided into two categories- Direct and Indirect taxes.
What is Direct Tax?
It is a tax levied directly on a taxpayer who pays it to the Government and cannot pass it on to someone else.
What are the direct taxes imposed in India?
Some of the important direct taxes imposed in India are mentioned below:
This is most important type of direct tax and almost everyone is familiar with it. TDS is its famous synonym and whosoever is earning above a minimum amount (tax exemption limit) has to pay income tax.
Amount exceeding Rs. 50000 received without consideration by an individual/HUF from any person is subjected to gift tax as income under “other sources”. There are exemptions like money received from relatives is not taxable. Marriage gifts and money received through inheritance are also exempt from gift tax. Inheritance tax was earlier in practice but has been repealed by the government.
Wealth tax is imposed on the value of the property that a person possesses. This is in addition to the income tax and is levied if your net wealth exceeds Rs 30 Lakh at the rate of 1% on the amount exceeding Rs 30 Lakh.
Property Tax/Capital Gains Tax
This is levied on the capital gains arrived by selling property and stocks. Tax rates are different for long term and short term capital gains.
Companies operating in India are taxed as per the corporate tax rate on their income. This tax is one of the major sources of revenue for government.
Advantages of Direct Taxes
- The lower income group carries a lower burden of tax
- Self-payment of direct taxes makes one socially aware and responsible
- The distribution of wealth is equal under direct taxatio
- Direct tax rates can be used as an anti-inflationary tool
Disadvantages of Direct Taxes
- Direct taxes might discourage savings and investments
- The biggest disadvantage being it leads to tax evasion
- It might be inconvenient to pay direct taxes as the procedure is complicated
Apart from the taxes above, there are various other small taxes which are paid from time to time like toll tax, dividend distribution tax, securities transaction tax, luxury tax and Octrai.
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