Hope you have a good understanding of why we pay taxes and the benefits of paying taxes to our government. If not, you can also check out the category on “All about tax” to understand this better.
Taxation in India is majorly divided into two types:
Direct Taxes
Indirect Taxes
Direct taxes are imposed on corporate entities and individuals. These taxes cannot be transferred to others. Direct taxes account for almost 50% of the government’s revenue in India.
There are three types of direct taxes applicable in India:
1. Income Tax
This tax is levied during each assessment year (1st April to 31st March). Individuals in India, earn an income in a diverse range. Therefore, it is important to levy a tax based on your income and if someone earns more, the tax percentage should be different. As per the Income Tax Act, 1961, it is mandatory for you to make income tax payments if your annual income is above the minimum exemption limit. The Income Tax Act segregates the income range and charges different rates as per the segregation. This different segregation group is the tax slabs. Your income tax slab can vary not only based on your income but also your age. for example senior citizens above age 60 have different tax slabs.
2. Capital Gains Tax
Capital gains tax applies to the profits you get from the sale of a capital asset only. The rate of tax on capital gains depends on the type of capital gain. According to Income Tax Act, 1961 capital gains tax is divided into two types:
Short-Term Capital Gains Tax
Long-Term Capital Gains Tax
Short-term capital gains are when the assets are sold within a specified period, for example:
a) Equity stocks sold within 12 months of purchase
b) Debt mutual funds sold within 36 months of purchase
c) Real estate property or gold sold within 36 months of purchase
If the asset is sold after the specified period, the gains or losses will become long-term capital gains or losses.
3. Corporate Tax
The corporate tax applies to the businesses and entities filing their returns as a company. The tax slab rate depends upon the turnover of the firm.
Indirect taxes in India have been the most consistent and largest revenue source for the government.
Under the Indian tax system, there are 5 types of indirect taxes.
1. GST
Service tax, value-added tax, and excise duty have been removed from a large number of goods and services and is been replaced by a single Good and Service tax. We’ll talk about GST in detail in coming videos.
2. Customs Duty
Customs duty tax applies to the goods being imported into India from other countries, and in a few cases to the goods being exported from India.
3. Securities Transaction Tax (STT)
Securities Transaction Tax or STT applies to the transactions involving an exchange of financial securities. For example, stock exchange When you buy equity shares all these equity shares are exchanged through a stock exchange, where you are liable to pay STT.
4. Stamp Duty
Stamp duty is a State Government tax that is levied on the transfer of assets within their territory. When person A buys land from person B, A is liable to pay stamp duty on the purchase amount. Thus, most people try to lower this stamp duty tax. In Kerala, it's 8%. If your buying land for 10 Lakhs, you are liable to pay 80,000 for stamp duty. This stamp duty also acts as legal proof of ownership of the asset or security to that person.
5. Entertainment Tax
Entertainment tax is involved in the entertainment business in the country and depending on the state, the tax regime changes. businesses such as movie releases, sporting events, concerts, amusement parks, and theatres, all come under this category.
You can also watch the video on Direct and Indirect Taxes here.
Explore the playlist of videos on "All About tax" here.