August 4, 2021

Types of direct taxes


Direct taxes include – personal income tax, corporate income tax, state tax on income from agricultural activities, property tax, and a number of taxes on an additional source of income.


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Income Tax 

Under the Income Tax Law, companies and business organizations in India are taxed on the income from their operations. For residents or local organizations whose tax is 35% and 2.5%, a surcharge will be charged. For foreign corporate organizations, the base tax rate of which is 40% and 2.5%, a surcharge is applied. In addition to this, 2% of the education tax is also charged on the tax amount.


Personal Income Tax

The personal income tax is levied on the income of everyone who does not work in the agricultural sector and is levied on a progressive scale at a rate of 10% to 31.5%, while at the minimum rate since 2005, the tax is levied on those whose annual income does not exceed 111.25 thousand rupees (about 2440 dollars) per year, and there are only about 48 million of such among the entire workforce of India (10% of all workers). Personal income tax is administered and controlled by the Central Council.


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Some amendments have been made to the budget regarding the latest personal income tax rates. If the payer is a woman, then the limit will be increased to 135,000 rupees. While for those over working age, the threshold limit has been increased to Rs 195,000.


Property tax 

It is levied on assets in excess of Rs 1.5 million ($ 33k). The fundamental corporate personal assessment rate is 35%.


For newly founded companies in the high-tech or scientific research sector, an exemption from income tax is granted for 10 years.


Income in the agricultural sector is subject to several taxes at once, but in total, they are significantly less than the usual income tax.


Capital gains tax

Capital gains tax is derived from the sale of assets.


The tax is levied on long-term capital gains if:


  • Fixed assets are held for more than three years
  • If the securities and shares are listed on any recognized Indian stock exchange.


In the case of long-term capital gains, they are taxed at a base rate of 20%. And normal corporate income tax rates apply for short-term capital gains. A 10% tax is levied on short-term capital gains that take place with the transfer of units of mutual funds and ordinary shares.


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Types of indirect taxes


Furthermore, the main indirect taxes in recent years have been sales tax, customs duties, excise taxes, and service tax.


Excise duty

In most cases, about 16% of excise taxes are levied, and in some cases, additional excise duty is about 8%, which is also levied. Due to the latest budget changes, educational processes are charged about 2%.


Tax incentives are created in sectors that create jobs, small businesses, handicrafts, food processing sectors, bio-diesel and so on. The excise tax was increased by about 5% on cigarettes and other tobacco products.


Customs Duty

Customs duty in India is subject to the 1962 Customs Act and the 1975 Customs Tariff Act. As a rule, customs duties are levied on goods that are imported into the country along with the educational process. For manufactured goods, the rate was reduced to 15%. The customs duty is assessed according to the value of the transaction of goods.


The Central Council of Excise and Customs under the Ministry of Finance manages the customs duty process in the country.


FTS: Generally, 10% of service tax is levied on various services that are provided in the country. The tax exemption limit in the case of small service providers has been increased to Rs.800,000 from Rs.400,000.


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Types of government taxes


Moreover, apart from central taxes, states also levy taxes on various goods and services. Some of the taxes:


Sales Tax / VAT: In most cases, sales tax is levied on the sale of movable property. Furthermore, in most states, sales tax has been replaced by value-added tax (VAT). In the case of VAT, taxes are levied only on goods, not services. 


VAT is 4 plates:


  • 0% on essential goods
  • 1% charged on ingots and precious stones
  • 4% of industrial products and capital goods of mass consumption
  • All other items 12.5%
  • VAT rates for oil, tobacco, alcohol, and so on differ from state to state.


In addition, there are some other states and local taxes that apply. 


These include:


  • Input tax
  • Stamp duty on transfer of assets
  • Real estate/building tax
  • Agriculture / income tax


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