What are the Different Types of Taxes?
The Indian tax system defines two types of taxes, which are further subdivided into various categories :
- India's direct taxes
- India's indirect taxes
Let's look at the direct and indirect taxes that apply in India.
Types of Direct Taxes
Direct taxes in India are those that are charged directly on an individual's or taxpayer's income, according to the Indian tax system. Direct taxes in India are overseen by the Central Board of Direct Taxes (CBDT), and they cannot be transferred to another individual or legal body.
What are the many kinds of direct taxes in India?
The categories of direct taxes in India, as described under the Indian tax system, are as follows :
1. Income Tax
Income tax is a tax levied on an individual's or an entity's annual income or earnings. As a result, the Indian tax system considers both salaried and self-employed persons who make an income to be subject to income tax. Individuals under the age of 60 are also eligible for a tax exemption of up to Rs.2.5 lakh per year under the Indian tax system.
2. Tax on Securities Transactions
The stock market and securities trading are subject to the securities transaction tax, as established by the Indian tax code. This tax is levied on the share price as well as the traded securities traded on the ISE (Indian Stock Exchange).
What are additional taxes classified as direct taxes?
Other forms of taxes that come within the direct tax category include :
- The Wealth Tax
- The Gift Tax
- Tax on Expenditure
Similarly, the Indian tax system allows a tax exemption ceiling of up to Rs.3 lakh for those aged 60 and up but under the age of 80. Individuals aged 80 and above have a restriction of Rs.5 lakh. The tax slabs differ according to income.
Types of Indirect Taxes
In India, indirect taxes are levied on goods and services when they are purchased and sold. These taxes are collected by the vendors of the service or product under the Indian tax system. The tax is collected in addition to the initial price of the goods or service, raising its cost. The following are the several forms of indirect taxes in India.
Goods and Services Tax (GST)
The Products and Services Tax (GST) is a consumption tax levied on the provision of services and goods that has totally replaced indirect taxes in India. The Indian tax system requires GST to be paid at every level of the commodities manufacturing process and value-added services.
The implementation of GST into the Indian tax system resulted in the repeal of previous types of indirect taxes and charges in India, such as Value Added Tax (VAT), OCTROI, and Central Value Added Tax (CENVAT).
According to the Indian tax system, items or services such as electricity, alcoholic beverages, and petroleum products are excluded from GST taxation. This tax is levied in accordance with the former tax framework established by the various state governments.
The following are some more types of tax forms that fall under the heading of indirect taxes :
- Tax on Securities Transactions
- Tax on Dividend Distribution
- Real Estate Tax
- Fees for registration, stamp duty, and transfer tax
- Education cess
- Tolls and Road Tax
Benefits of Paying Taxes
According to the Indian tax system, paying income tax is mandatory, but it is extremely beneficial for those who make taxable salaries (particularly those that exceed the necessary exemption amount) and file income tax reports.
The scenario stays the same under the Indian tax system if the tax due is nil after deductions. Furthermore, if your income is less than the basic exemption ceiling, there are several advantages to filing taxes under the Indian tax system. The following are some of the benefits of paying your taxes on time :
Loan Approval in Less Time
When you apply for a loan, whether it's a home loan or a car loan, major banks will ask for a copy of your income tax records. Income tax reports filed for the past 2-3 years might aid earn a bigger loan amount, according to Indian tax system instructions. The objective for requesting ITR papers is to determine an individual's ability to pay back a loan based on his earnings.
Visa Processing Time is Reduced
Most foreign embassies need income tax records for the preceding years during visa interviews. The consulates of the United Kingdom, the United States, Europe, and Canada regard it as a mandate, although South East Asian nations and the Middle East do not always request ITR data. According to the Indian tax system, these ITR filings serve as proof that you are not leaving the country to avoid paying taxes.
According to the Indian tax system, it is recommended to keep your ITR file receipts with you while travelling overseas, whether for business or pleasure, as they come in useful in times of emergency and you need to seek the assistance of the embassy.
Refund Claims Made Easier
The sole option to collect any refunds owed from the Income Tax Department, as defined by the Indian tax system, is to file an ITR. Even though the income is below the tax exemption level, the Indian tax system states that there may be refunds available from different savings strategies that can be claimed in this manner.
