Taxation in India

A tax is a legal fee or monetary charge imposed by the government on a person or a business. This tax is collected as money for government projects like health infrastructure, education infrastructure, and transportation services such as Metro and buses. Taxation is a financial responsibility imposed on the people or residents of a country. In India, the central and state governments play a key role in taxation. The state and federal administrations have implemented significant policy reforms to streamline the taxes procedure and enhance transparency in the country. Indirect taxes are collected a bit differently from direct taxes. The Products and Services Tax (GST) on the country’s delivery of goods and services was one such shift. Lets know more about the Types of Taxes in India.

Types of Taxes in India:

An entity has to pay taxes in various forms. Depending on how they are paid to the taxation authorities, these taxes are classified into direct taxes and indirect taxes. Let us discuss Types of taxes in India in detail:

Direct Tax:

Taxes paid directly by individuals and organisations to the government of India come under Direct Tax.

Indirect Tax:

Indirect taxes are collected a bit differently from direct taxes, and these are consumption-based taxes that are applied to goods or services when bought and sold. The government receives indirect tax payments from the seller of the good/service. The seller, in turn, passes the tax on to the end-user, i.e. buyer of the good/service. Thus, the indirect name tax as the end-user of the good/service does not pay the tax directly to the government.

Goods and Services Tax:

GST (Goods and Services Tax) is an indirect tax (sometimes known as a consumption tax) imposed on India’s supply of goods and services. It is imposed at each stage of the manufacturing process. The tax is divided into five categories: 0%, 5%, 12%, 18%, and 28 percent. Although the national government collects GST, state governments collect taxes on petroleum items, alcoholic beverages, and electricity separately.

Various taxes

Income Tax:

This is the most prevalent tax paid to the government by an individual citizen. The principle is straightforward: every year, a portion of your income is paid to the government, which is used to fund the government’s growth and development operations throughout the country.

Custom Duty:

Customs Duty is charged on products imported into India and commodities exported from India and is collected by the Central Board of Excise and Customs (CBEC) under the Department of Revenue, Ministry of Finance, Government of India. The Constitution has granted the Union the power to legislate and collect import and export tariffs.

Excise Duty:

The Central Excise Duty (CED) is an indirect tax placed on items made in India and intended for domestic use. The taxable event is manufacture,’ and central excise duty liability begins when the items are made. It is a manufacturing tax paid by the manufacturer and then passed on to the customers.

The phrase “excisable goods” refers to goods subject to excise duty and are listed in the First and Second Schedules of the Central Excise Tariff Act, 1985, which includes salt.

Excise Duty is imposed on these commodities in India.

• Crude petroleum
• Diesel with a high rate of acceleration
• Spirit of motion (commonly known as petrol)
• Natural gas is a renewable energy source.
• Fuel for aviation turbines
• Tobacco and tobacco products

Value-added tax:

One of the important components of tax reforms initiated since liberalisation is the introduction of Value Added Tax (VAT). The VAT is a multi-point destination-based system of taxation, with tax being levied on value addition at each stage of the transaction in the production/ distribution chain.

The VAT is a State subject, derived from Entry 54 of the State List, for which the States are sovereign in taking decisions. The State Governments, through Taxation Departments, are carrying out the responsibility of levying and collecting the VAT in the respective States. While the Central Government is playing the role of a facilitator for the successful implementation of VAT. The Ministry of Finance is the main agency for levying and implementing VAT, both at the Centre and state levels.

Toll Tax

Toll tax is the tax imposed by authorities for travelling on a specific stretch of highway. However, the rates are different at different toll plazas as a specific toll plaza maintains a certain part of the highway only. Toll rates for all toll plazas are revised every year according to the National Highways Fee (Determination of Rates and Collection Rules, 2008). The toll tax is exempted for VIPs and dignitaries mentioned in the exemption list.

Conclusion

The Indian taxation system is divided into the central government and the state governments. Local governments, such as the Municipality and the Local Governments, levy some modest taxes. Money is essential to run a government and handle a state’s affairs. As a result, the government levies various taxes on individual and corporate earnings. While direct taxes are levied on taxable income earned by individuals and corporate entities, the burden to deposit taxes is on the assesses themselves. On the other hand, indirect taxes are levied on the sale and provision of goods and services, respectively.