Taxation

The process of taxation can be complicated yet very simple. The complexities of taxation differ for individuals, businesses, and companies. It is very important to understand the different sections and how it applies to you. A tax is a financial levy placed on residents of a country by the central or state governments to fund developmental initiatives. The tax is collected to fund infrastructure development and maintenance, as well as the general welfare of the country. Despite the fact that tax is a mandatory levy that people or groups must pay, it is only collected from those who are able to pay it. This indicates that the tax is collected according to the government’s income slabs. 

Types of Taxes

The distinction between tax kinds is determined depending on who is charged with the tax and who pays the tax to the appropriate authorities. To put it another way, if the tax burden and payment are carried out by the same individual or by a separate person. As a result, there are two sorts of taxes: direct and indirect. The following is a thorough overview of the many types of taxes:

1. Direct Taxes

Direct tax, as the name implies, is a tax that is paid directly to the taxing body by the taxpayers. As a result, the tax cannot be transmitted to any other legal body or people. Furthermore, the direct tax is linked to an individual’s income and wealth increase. The following are examples of direct taxes:

• Income Tax

Income tax is a tax levied by the government based on an individual’s annual earnings. It is calculated using various tax slabs based on the amount of income generated by an individual over the course of a fiscal year. The Income Tax Rules also contain a number of exclusions for low-income individuals and older persons. Individuals, as well as HUFs, small businesses, and municipal governments pay income tax.

• Corporate Tax

The tax paid by a corporation is known as corporate tax. The tax is determined by the number of dividends paid to investors, fringe benefits provided to employees, and alternative taxes paid by the firm.

• Capital Gain Tax

The capital gain tax is a one-time payment made by the taxpayer on the sale of real estate and investment earnings. All investment gains, whether short and long-term, are subject to taxation.

2. Indirect Taxes

Indirect taxes are those that are paid to the government or to the appropriate tax collecting authority in a non-direct manner. The tax is levied on both the consumption of goods and the use of services. As a result, the tax is collected either by the seller or by the service provider, who also collects it from the consumer. Unlike a direct tax, which is based on income and wealth, an indirect tax is based on consumption. The following are some instances of indirect taxes:

• GST

The Goods and Services Tax (GST) is a tax that applies to both goods and services. It is imposed on the supply of products and services, as well as at each level of the manufacturing process. The tax, on the other hand, is reimbursed to those participating in the manufacturing process and is eventually collected from the final point of consumption. GST applies to nearly all goods and services; nevertheless, there are several instances where GST does not apply. Electricity, petroleum, and alcoholic beverages are only a few examples.

• VAT

Value-added tax (VAT) is a tax that is levied on goods and services. VAT is a consumption-based tax, but it differs from GST in that different VAT rates apply to different states in the country, whereas the GST rate is the same in all states but varies by product. The VAT is levied on items that aren’t covered by the GST, such as gasoline and diesel.

Other kinds of Taxes in India

The following are some of the other taxes that produce revenue for the government:

• Entertainment Tax: This kind of tax is levied on gross receipts and revenues from entertainment media including movies, television shows or series, and exhibits, among others.
• Entry Tax: An entry tax is a tax levied on commodities and products entering a state via services such as e-commerce. It is applicable in a number of states, including Delhi, Madhya Pradesh, and Assam.
• Professional Tax: Professional tax is levied on the incomes of professionals such as physicians, chartered accountants, and architects, to name a few.
• Property tax: is a levy imposed on property owners, whether they own residential or commercial properties. A real estate or municipal tax is another name for the tax. It is collected by a city’s local government or Municipal Corporation for the purpose of developing and maintaining basic facilities.
• Stamp duty: is a one-time tax paid when an asset or property is transferred. The fee is levied to cover the cost of legally stamping property or asset ownership papers.

Taxes and their Benefits

As previously said, taxes are government income that assists in the proper running of society. The following are some of the benefits of paying taxes in India:

1) Taxes assist government agencies in providing public services and developing facilities such as parks, government hospitals, subsidies, and schools, among other things.

2) Taxation contributes more to the economy since it increases government income.

3) Taxes assist the government in improving people’s living standards through funding sanitation, healthcare, and education, among other things.

4) Apart from the government, paying taxes benefits the individuals as well. Paying this mandatory fee on time enables one’s Visa application to be approved quickly, as paying tax is a vital checkmate for traveling abroad.

5) Income Tax Returns and other tax papers assist people in applying for loans and credit cards. This is due to the fact that the ITR return form also serves as proof of income.

6) Paying taxes also aids in obtaining compensation in the event of accidents or tragic events, as compensation is only possible if there is no tax burden on one’s name.

7) Paying taxes on time will also help you get a high-cover life insurance policy worth anywhere between Rs. 50 lakhs and Rs. 1 crore.

Penalties on Taxes

Taxes are a mandatory levy that must be paid by all qualifying income earners. As a result, failing to pay these taxes on time may result in fines. The following are the penalties for not paying taxes:

1) According to section 140A, partial or complete failure to pay the tax might result in one being labeled a defaulter (1).

2) Section 221 (1) allows for the imposition of a penalty equivalent to the amount owed.

3) In addition, if any source of income or earnings is concealed or hidden, a fine of 100 percent to 300 percent can be imposed under section 271 of the Criminal Code (C).

4) If a taxpayer fails to reply to a tax notice, the defaulter may be required to produce a written list of all assets and obligations. This applies to sections 142 (1) and 143. (2).

Income tax Returns: Important

TDS (tax deducted at source): TDS stands for tax deducted at source. The sum deposited to the income tax department on behalf of another taxpayer is known as TDS. TDS is levied on a variety of payments, including rent, salary, commission, bank interest, interest on securities, and professional fees, among others. It is generally deducted by the employer or the assessor’s deductor. TDS reduces the taxpayer’s tax burden because the charge on these taxable items has already been paid at the time of payment.

Advance Tax: Advance tax, as the name implies, is tax paid to the IRS on a monthly basis rather than in one big payment. The advance tax payment is a tax that is paid before the end of the fiscal year; hence, it is referred to as a tax paid in advance. The ‘pay as you earn tax’ is another name for this tax. This is due to the fact that the tax is paid by the taxpayer when the money is received. When the TDS deducted is less than the entire tax burden that must be paid in a year, taxpayers must pay the advance tax. If the total tax due for the year exceeds Rs. 10,000, the advance tax must be paid to the income tax department. It will be paid by salaried workers who have additional sources of income, as well as self-employed professionals. However, the advance tax is excluded in specific circumstances, such as for non-working elderly persons over the age of 60 and for salaried individuals with just a salary as a source of income. Aside from that, if the TDS deducted exceeds the tax due, the taxpayer is not required to pay income tax.

HRA (House Rent Allowance) Exemption: HRA stands for House Rent Allowance. It is a portion of the revenue supplied as a house rent that is included in the employer’s compensation. Under section 10 of the Income Tax Act of 1961, the HRA component offers an annual tax advantage to the employee. By choosing for the previous tax regime, salaried persons might get partial or full HRA exemption.

Income Tax Assessee: An income tax assessee is a person who is responsible for paying taxes on any earnings or losses made within a fiscal year. As a result, an income tax assesse is someone who has paid tax in the preceding year. The income tax assessee has the ability to pay the tax not only on his own behalf, but also on behalf of others. The regular assessee is the person who pays the tax on his or her own behalf, whereas the representative assessee is the person who pays the tax on behalf of others. Non-residents, children, and lunatics are frequently obliged to have a representative assessee.

Some Latest Rules

• New rules will take effect on June 1st.
• Due to the inauguration of the new portal, the Income Tax e-filing portal will be unavailable from June 1 to June 6. On June 7, the new gateway will go live.
• The filing deadline for tax returns has been extended till September 30.
• EPFO has requested that your Universal Account Number be linked to your Aadhaar number; else, your EPF contributions may be halted.
• The Bank of Baroda will deploy a new cheque payment mechanism on June 1st.
• The deadline for hallmarking gold jewellery has been extended until June 15.

FAQ’s

1) What exactly do you mean when you say “tax”?

A tax is a monetary charge levied on inhabitants of a country that must be paid to the government. The government levies a tax to generate income for development and infrastructure projects.

2) In basic terms, what is a tax?

Simply said, tax is a fee levied by the government on individuals in exchange for cash invested in the improvement and growth of public facilities.

3) What are the different sorts of taxes?

Taxes are classified according to the mechanism through which they are paid to the government. Thus, there are two sorts of taxes: direct and indirect taxes.

4) Which tax system is the most beneficial?

The GST, or goods and services tax, was implemented with the goal of unifying the country’s taxation system. It provides benefits such as the removal of the tax cascade effect, unorganized sector regulation, digital taxation platforms, and a small business composition plan, among others.

5) What is the formula for calculating the tax?

A person’s tax is computed according to the income slabs he or she fits into. Furthermore, income tax calculations take into consideration all other sources of income, such as wages, capital gains, and property. All of this is taken into account when calculating Gross Total Income, from which taxable income is calculated after subtracting exemptions and deductions according to the tax slab.