2 Corinthians 5:7
In this post I shall briefly explain what are the major taxes we pay in India. I hope this can eliminate to an extend the confusions that you have on what taxes you pay or how much you pay and helps you in better money management. FYI, a financial year in India starts from 1st April and ends on 31st March. Income tax returns are filed in the next year after the end of the Financial year and is called the Assessment year.
In India, currently we have two types of taxes. Direct taxes and Indirect taxes. (Indirect taxes will soon be replaced by Goods and Services Tax (GST) which I shall explain in the coming posts.)Under theses, there are certain taxes which are levied by Central government, others by State governments and certain other taxes levied by Local bodies. We shall see each one below.
Direct Tax
Direct tax is imposed by the Central government directly on people and organisations. The tax payer pays it directly to the Central government. Income tax and Corporate tax are Direct taxes.Income tax
Income tax is the tax imposed on your income. Various sources of income are:
.income form salary
.profit from business or profession
.interest income
.gains from selling shares or properties
By the abolishment of Fringe Benefit Tax (FBT), which was levied on perquisites such as accommodation, conveyance and other benefits provided to the salaried staff and paid by the employer, these perks are now added to the individual salaries of the employees for the computation of income tax.
If you have income from multiple sources, the taxable income would be the sum of all incomes. So if you pay tax only for your salary and keeps the profit money from selling your two-storey house under cover, that profit money for which you did not pay tax would be categorized as black money and Mr.Narendra Modi wouldn't be very happy about it.Now let us take a look at the income tax slab for Financial Year (FY) 2016-17.
(Click here for Income tax slab for FY 2017 - 18.)
.income form salary
.profit from business or profession
.interest income
.gains from selling shares or properties
By the abolishment of Fringe Benefit Tax (FBT), which was levied on perquisites such as accommodation, conveyance and other benefits provided to the salaried staff and paid by the employer, these perks are now added to the individual salaries of the employees for the computation of income tax.
If you have income from multiple sources, the taxable income would be the sum of all incomes. So if you pay tax only for your salary and keeps the profit money from selling your two-storey house under cover, that profit money for which you did not pay tax would be categorized as black money and Mr.Narendra Modi wouldn't be very happy about it.Now let us take a look at the income tax slab for Financial Year (FY) 2016-17.
(Click here for Income tax slab for FY 2017 - 18.)
Income tax slab for FY 2016-17
Resident individual and NRI below the age of 60 years
Surcharge: 15% of tax for taxable income higher than 1 Cr. However surcharge shall be subject to marginal relief.
Resident individual of age of 60 years to less than 80 years
Surcharge: 15% of tax for taxable income higher than 1 Cr. However surcharge shall be subject to marginal relief.
Resident individual of age 80 years or above
Surcharge: 15% of tax for taxable income higher than 1 Cr. However surcharge shall be subject to marginal relief.
Rebate under section 87A of Income Tax Act, 1961 for FY 2016-17
As per section 87A, a rebate of 100% or Rs 5,000 which ever is lower, is allowed to all resident individuals whose income is Rs Rs 5,00,000 or below.Corporate tax
In India, corporate tax is levied on both domestic as well as foreign companies. Like each individual with an income is supposed to pay a tax on his income, business houses too are supposed to pay tax based on different levels of profit they earn. Corporate tax is also called Corporation tax or Company tax. For the Assessment Year 2016-17 and 2017-18, a domestic company is taxable at 30%. However, for Assessment year 2017-18, tax rate is 29% if turnover or gross receipt of the company does not exceed Rs. 5 crore.Gift tax
I am pretty sure most of you might not have heard of Gift tax. Yes we
need to pay tax for the gifts that we receive which is worth more than
Rs 50,000 a year. This taxable amount is added to the income of the
receiver under other sources of income and taxed along with the total
income. However, gifts from relatives are exempted; specifically from
parents, spouse, your and your spouse's brothers and sisters, your
lineal descendants and your spouse's lineal descendants. Also gifts
received for your wedding, even if not from relatives, are excluded.
Gifts received from local authorities or educational institutions for
your good deeds or on the basis of merit are also not taxable.
Education Cess , Secondary and Higher education Cess
Education cess is the 2% of the total income tax and is paid to the Central government to support government's finance for providing basic education to children in India. Another 1% of the income tax is levied to support the Secondary and Higher education in India.Professional Tax
Professional tax is imposed at the State level and is levied by
particular Municipal corporations from anyone earning and income from
salary or anyone practicing a profession such as chartered accountant,
lawyer, doctor etc. In private companies, it is deduced by the employer
and sent to the Municipal Corporation. Different states have different
rates and methods of collection. The tax payer is eligible for income
tax deduction for this payment.
Indirect taxes
Indirect taxes are those taxes that are paid indirectly through a third party to the Central government or State government depending on who imposes the tax. For example, when you buy pizza from Domino's you see a service tax amount printed on the bill. You pay this service tax to Domino's and Domino's pays it to the Government. Assuming that you have got it, I shall now share with you major Indirect taxes that we have at the moment in India.Excise duty
Excise duty is levied by the Central government. It is the tax imposed on goods manufactured in India and is paid by the manufacturer to the government. Manufacturer then recovers the tax amount from the customers.Service Tax
Service tax is the tax levied on the services provided by any entity.
Providing services means assistance in any work or providing intangible
benefits to others. Service tax is collected by the Central Government.
Service tax rate is now 15%.
Customs Duty
Customs duty is the tax imposed on goods that are imported or exported. It is collected by the Central government.Sales tax
Value Added Tax (VAT)
VAT is the sales tax levied on tangible goods by the government of the state where the final consumer is located and therefore it varies from state to state. That is why some goods are cheaper in other states. The first seller pays the first point tax and the next seller pays tax only for the value addition (increase in the value of goods). That is how VAT works. VAT is imposed on those goods whose seller and buyer are in the same state.
Central sales tax (CST)
Central sales tax is the sales tax levied by the the Central government when goods are sold from on state to another ie, the seller and the buyer need to be in two different states.
VAT is the sales tax levied on tangible goods by the government of the state where the final consumer is located and therefore it varies from state to state. That is why some goods are cheaper in other states. The first seller pays the first point tax and the next seller pays tax only for the value addition (increase in the value of goods). That is how VAT works. VAT is imposed on those goods whose seller and buyer are in the same state.
Central sales tax (CST)
Central sales tax is the sales tax levied by the the Central government when goods are sold from on state to another ie, the seller and the buyer need to be in two different states.
Securities Transaction Tax (STT)
STT is levied at the time of sale or purchase of securities like Mutual funds, Shares etc, through the Indian Stock Exchanges. The rate of taxation is different for different types of securities. STT is collected by the Central government.Stamp Duty and Registration fee
Stamp duty is the tax imposed on legal documents usually in the sale
and purchase of assets or property. Stamp duty rates may vary from state
to state as it is levied by the State government.
Entertainment tax
Yea, we need to pay tax to have entertainment. Entertainment tax is the tax levied on every financial transaction which is related to entertainment. This includes Cinemas, Amusement parks, Exhibitions, sports etc. Entertainment tax is imposed by the State government.Luxury tax
As the name says, Luxury tax is the tax levied on commodities or
services that provide comfort and pleasure. This includes luxury
provided by Hotels, Restaurants, House boats, Auditorium and other
hospitality services. Luxury tax is levied by State government and it
varies from state to state.
Swachh Bharat Cess (SBC)
SBC is levied by the Central Government on all taxable services at the rate of 0.5% of the value of the taxable service for financing and promoting Swachh Bharat initiatives.Krishi Kalyan Cess (KKC)
KKC is levied by the Central Government along with the Service tax. KKC adds on another 0.5% to your Service tax burden.Infrastructure Cess
Infrastructure cess is imposed by the Central Government on production of vehicle and the rate charged depends entirely on the type and capacity of the vehicle.Property tax
Property tax is paid to the local Municipality on properties owned by you like your house, office building etc. Different Municipalities have different rates.Entry tax
Entry Tax is a tax on the movement of goods from one state to another imposed by the state governments in India. It is levied by the recipient state to protect its tax base.Theses are the common taxes that we come across in our day to day life. Indian Government is try to bring a tax system which would consolidate the Indirect taxes to a single tax called Goods and Services tax (GST) which might be implemented soon. I hope it makes the tax system of India much more clear and easy.
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