Direct Tax In India

Direct Tax In India

In India there are two types of taxes, they are - Direct Tax and Indirect Tax which are imposed on the citizens of India.

What Is Direct Tax?

Direct Tax is a tax imposed directly on a taxpayer who is required to pay this tax to the Government and it cannot be passed it on to anyone else.

The Central Board of Direct Taxes in India

The Central Board of Direct Taxes (CBDT), which was established as the result of the Central Board of Revenue Act, 1924 which deals with the Direct Taxes in India. This division is part of the Department of Revenue in the Ministry of Finance and is liable for the management of the direct tax laws. Also, the Central Board of Direct Taxes also offers inputs and recommendations for framing policies and planning of the direct taxes in India.

The advantages of direct taxes

Direct taxes are advantageous for a country’s social and economic development. To mention a few,

•    It controls inflation: The Government frequently increases the tax rate if there is a monetary inflation which consecutively decreases the demand for goods and services and as a result of dropping demand, the inflation is bound to condense.

•    Social as well as economic balance: Depending on every person’s incomes and overall financial situation, the Government has well-defined slabs for taxes and exemptions prepared so that the income inequalities could be balanced out.

Different types of Direct Taxes in India

The types of direct taxes imposed on citizens by the Government of India are:

1) Corporate Tax

Under the Indian Income Tax Act, 1961, the corporate tax in India is imposed on both foreign companies as well as domestic corporations. Corporate tax is calculated on the net revenue or net income of a corporation of domestic firms. Corporations, both private and public which are registered in India under the Companies Act 1956, are legally responsible to pay corporate tax. Also, foreign companies whose incomes appear or are believed to emerge through their operations in India are also legally responsible to pay taxes towards the Government of India. The income of a corporation, either as dividends, interest, and royalties, is also taxable.

Presently, corporations having gross turnover up to Rs.250 crore are legally responsible to pays a corporate tax @ of 25% of the net profit while corporations with a gross turnover of above Rs.250 crore are liable to pay the corporate tax at 30%. The other types of corporate tax contain the following:

Minimum Alternative Tax (MAT): MAT is levied on “zero tax corporations”, which usually are referred to businesses that declare little or no earnings with the intention to save tax.
Fringe Benefits Tax (FBT): The FBT tax is levied on the fringe benefits such as drivers and maids provided or paid for by corporations to their staffs.

Dividend Distribution Tax (DDT): A sum that is declared, distributed or paid as dividend towards the stockholders by a domestic corporation is taxed under the Dividend Distribution Tax. It applies to domestic corporations only. Foreign corporations distributing dividends in India are not required to pay this tax.

Securities Transaction Tax (STT): The SST is levied on the earnings which the corporations get through taxable securities transactions. This tax is basically free of surcharges.

2) Income Tax

Income tax is possibly the most renowned direct tax levied by the government on annual income made through businesses and persons. The income tax on earnings made by the enterprises is recognized as Corporate Tax. Income tax is calculated according to the provisions of Income Tax Act, 1961 and is directly payable towards the central government on an annual basis. The rate of income tax relief on the net taxable income or the tax bracket. Income tax might be deducted in the form of tax deducted at source (TDS) relating to salaried staff. Though, concerning the self-employed individuals, the tax is paid on the basis of declared income according to their Income Tax Return submission. ITR is essentially a statement of income as well as the tax liability (relating to the income declared) which is submitted towards the Income Tax Department in the specified format.

Income tax is imposed on many sources of income which includes Income from remunerations, from capital gains, from business, income from house property or additional sources.

3) Capital Gains Tax

It is a type of direct tax that is payable due to the income that is made from the sale of assets or investments. Investments made in farms, bonds, shares, businesses, art, as well as home falls under capital assets. Concerning its holding period, tax could be classified into long-term and short-term. Any assets, aside from securities, that are sold in 36 months from the time they were obtained fall under short-term gains. Long-term assets are imposed if any earnings are made from the sale of properties that were held for the duration of above 36 months.

The capital assets of a person referred to anything possessed for personal usage or for the investment. For companies, the capital asset is anything that could be utilized for more than a year and is not planned to be sold or liquidated during the business operation.

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eStartIndia Team

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