There are various taxes in India that you might not even know that you are subject to. A lot of our hard earned money is spent on paying these taxes. These significantly reduce the available cash in our hands, much to our dismay.
But, have you ever wondered how many taxes in India are you actually paying directly as well as indirectly? Many of you might think that the Income Tax is the only major tax that you are paying. However, it might not always be so. There are many other taxes that you are paying to the Government.
Let us see how much of our hard earned money is spent in paying taxes.
Taxes in India:
There are mainly two types of taxes, direct and indirect taxes. The direct taxes are paid by you directly to the Government whereas the ultimate burden of indirect taxes lies with us as we are the final consumers. The indirect taxes are generally charged on goods and services. They are collected from us indirectly, as they are charged as an addition to the price of the products and services.
A. Direct Taxes:
Direct taxes in India are imposed on the earnings and profits of individuals and companies.
Some of the direct taxes that you pay are:
- Income Tax: This is the most well-known tax in India. It has to be paid by the individual as well as the companies if the income earned by them exceeds the minimum amount if any laid down by the Government. The income tax slabs are reviewed every year in the Union Budget of India.
- Capital Gains Tax: We have to pay this tax when we sell our property or investments. This tax is calculated on the difference between the amount paid while purchasing an asset and the proceeds received after selling it. There are two types of capital gains tax:
- Short term capital gains: If you have owned the property for less than 36 months (12 months in case of shares), the profit on the sale will be called short term capital gains. The tax on such gains will be calculated according to the income tax slab rates.
- Long term capital gains: If the property has been held by you for more than three years and one year in the case of shares, the tax will be calculated @20% on the long term capital gains. A detailed discussion on how capital gains are taxed is given here.
- Securities Transaction Tax: Every time you are purchasing or selling securities like shares, derivatives, etc. you are paying this tax along with the price. This tax is attached to the price of all the securities that are traded on the stock exchange. Make yourself aware of the STT rates if you are investing in shares and derivatives, or are planning to start in the future.
- Perquisite Tax: Perquisites are the benefits and privileges offered by the employer to his employees. Such perquisites include rent free accommodation, motor car expenses, gas expenses, etc. The taxable portion of the perquisites is added to the salary and hence the tax on them is calculated according to income tax slab rates.
- Corporate Tax: These taxes are paid by domestic and foreign companies annually at the rate of 30% and a 40% Surcharge has to be paid in addition to taxes and education cess if the company’s revenue exceeds 10 million rupees.
B. Indirect Taxes:
Indirect taxes in India are levied on goods and services that are sold.
Some of the prominent indirect taxes are:
- Sales Tax : Every time a seller sells a product, he levies sales tax on the buyer which is included in the total amount charged. The manufacturer then pays the tax to the Government. This tax is charged only on movable goods. There are two types of sales tax:
- Central Sales Tax: This tax is levied on interstate sales and is charged by the Central Government. The tax is charged at the rate of 2% or VAT rate of the state in which the seller’s registered office is situated, whichever is lower. However, the revenue goes to the State Government.
- Value added tax: The tax charged on sales taking place within a state is called Value added tax. As the name suggests, the tax is charged on the price added at each stage of sale till it reaches us. This tax differs from state to state as it is both levied and collected by the State Government.
- Excise duty: This tax is charged to the manufacturer who produces or manufactures goods in India. It is also known as Central Value Added Tax (CENVAT) as it has become a value added tax as the time passed, thus making us the indirect bearers. Basic excise duty is charged at the rate of 12.5% and education cess is not charged with this duty.
- Service Tax : It is charged by the service provider while providing services to us each time we avail a paid one. A few services are covered in negative list and some are exempted from the levy of service tax. Some taxable services are restaurant, beauty parlour services, etc. The current service tax rate is 14.5%.
- Customs Duty and Octroi: It is levied on import and export of goods. Whenever we bring in goods from a foreign country, customs duty is levied on it. Customs duty is charged according to the character of goods and is generally paid at the port itself. Octroi duty is charged when the goods are brought in from other municipalities within India and is levied by the State Government.
Apart from these there are many other taxes in India, like professional tax, entertainment tax, gift tax, etc.
Taxes payable are often increased by various surcharges, and education cess (charged at the rate of 3% on the tax amount) to gather funds for various development activities.
India is waiting for the introduction of Goods and Services Tax (GST) has been in discussion for a while. At present, the provisions of the bill is being hotly debated in the Indian Parliaments, and there is no clear date by which it will be enacted as a law. But industry stalwarts expect it to bring a major change in our economy whenever it sees the light of the day.
Taxes are necessary
By now, you might be astonished by so many types of taxes are we paying directly as well as indirectly. But remember that the money that the Government collects through these taxes in India are mostly spent by it on constructing roads, education, improving the country’s security, development of a digital infrastructure, running the Government offices, etc.
Without collecting adequate revenues in the form of taxes in India, the Government can’t spend anything on the development of the country, and the development of the country will stop totally. No one would want that, isn’t it?