Tax and death are unavoidable. If you are living with society, you have to pay tax. You can avoid tax only if you live in caves like an animal. It may be visible or invisible. In fact a big part f our earning goes into the tax. That is why, we try to minimize the tax outgo. We learn the ways to save tax. Some of us even evade tax. If you don’t pay tax on your income, it becomes black money. Let us learn all about the tax in India.
What is Tax: Meaning
Tax is a fee charged by the government on a product, service, activity and income. It is mandatory and you can’t escape it. All the government activities are dependent on the tax collection. The tax can be direct and indirect. When tax is taken directly from the people and corporations it is called as the direct tax. When the tax is included in the price of product or service, it is called as the indirect tax.
- Tax is a fees charged on all the economic activity. These economic activities are production of an item, a service and income.
- The government charges tax from the people and corporations.
- Tax is charged on everyone and even on entities.
- The tax is mandatory to everyone. You can’t escape it.
- The government uses tax collection to give you various services and maintain armed forces.
- Government charges tax on the basis of a determined rate.
- The tax evasion is punishable by law. Non-payment of tax attract heavy penalty.
Why Tax is Charged
The government needs money to perform its duties. As government doesn’t have a separate source of income, It takes money from those who earn or spend money. Indeed, any government is dependent upon the people for its expenses. Governments, normally, provide these services.
Tax is Collected For…
- Armed forces
- Internal security and Police
- Education to All
- Water supply
- Civic facilities
- welfare schemes
Hence, every government in the world charges tax from its people. The tax rate may vary, but it is a must. The tax is charged since the time of kings.
How Government Collects tax
Government adopts two ways to collect tax. In the first way It directly asks tax from those who earns money. Such as income tax and professional tax. This type of tax pinches most.
In the second method it indirectly charges tax on your expenses. If you are paying money for a product or service, you have to also pay some tax. The tax is included in the price of product or service. The example of such tax is service tax and VAT.
The government has made separate departments to collect different types of taxes. There is a huge machinery to collect tax from every eligible, person and entity.
Types of tax
There are two types of taxes. Direct and indirect tax. These two types of taxes are different on the basis of collection method.
When the tax is charged on your income and you pay it to the government, It is called as the direct tax. You can’t transfer this tax liability to anyone. You have to pay this tax. Following are the example of indirect tax.
1- Income Tax – You must be aware about this. You have to pay income tax if you earn more than a limit. The employers deducts income tax (TDS) in case of salaried employees. While, self employed and businessman pays income tax on its own. Income tax is charged on the basis of income tax slab.
2- Corporation Tax
It is similar to income tax. The companies have to pay this tax on their earning. There is no minimum limit for this tax. Companies pay this tax from the first paise of profit.
3- Capital Gains Tax
It is a form of income tax. Capital gains tax is levied when you earn a profit from the sale of an investment. The rate of capital gains tax is different for various asset classes. The capital gains tax on property is different from the capital gain tax on shares.
4- Securities Transaction Tax
This Tax is levied on the purchase of shares. It is a small tax and ensure tracking of the share investment as well. The investment in shares enjoy zero long term capital gains tax if the STT has been paid.
5- Professional Tax
The state governments charges this tax. They decide the rate of professional tax. This tax is levied on those people who earns in a particular state. The professional tax goes to the local municipal corporation.
6- Education Cess
Government has imposed a seprate tax to fund the education in India. This tax piggybacks on income tax. A tax which is based on another tax is called as the cess. People has to pay a cetain percentage of income tax as the education cess. We have to pay 3% of the income tax as education cess.
7- Wealth Tax
This tax was levied on those person who has assets more than a limit. As of now this tax is discontinued.
These taxes are charged on the product or services which we use. Hence, we don’t directly pay these taxes. Rather, the producer or service provider pays these taxes to the government. In return, the price of product and services gets increased. Some of the indirect Taxes are given below.
8- Goods and Services Tax
GST is the new and all encompassing indirect tax. It has replaced various indirect taxes. Before GST there used to be excised duty, VAT, entry tax, service tax, entertainment tax etc. The GST is levied on every service or product sold in India. There are three rates of GST.
9- Custom Duty
This tax is levied on the imported products. The central government fixes the rate of this tax. Using the custom duty rate, government controls the import of products. The anti dumping duty is also levied to discourage cheap imports.
10- Stamp Duty
This tax is levied on purchase of property. You must be aware that registration of property is done through the Stamp paper. These tamp papers are the way to pay the stamp duty. The state government gets the money of stamp duty.