Types of Taxes in Indian Economy

Types of Taxes in Indian Economy

Introduction

Taxes are the amount of contribution made by the local public from their income to the government authorities for the purpose of various public services being used by them. Taxes plays the vital role in the revenue of Government of India. Indian tax structure is divided into two main categories, namely-

1.     Direct Taxes

2.     Indirect Taxes.

Central Government and the state Government has been given the specific authorities to levy these taxes as per the rules set in the specific laws.

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Direct Taxes

As the name indicates, direct taxes are levied directly on the income of individual, companies and other business entities. In this category three taxes are included, namely-

1.     Income Tax- This tax is levied on the income earned by an Individual, companies and other business entities. Income tax is governed by the Income Tax Act, 1961. Under this Act it is, mentioned that every person earning income above the maximum exemption limit (i.e. Rs. 2, 50,000 as per the latest update) is liable to pay tax. Tax is levied for every financial year and as per the slab rates mentioned in the budget every year.

2.     Wealth Tax- Wealth tax is levied when the total wealth of any individual exceeds the specified limit. The exemption limit is specified as Rs. 30 Lakh and above which 1% tax is applicable. This tax covers the richer section of society and applicable only to Individual and HUF.

3.     Gift Tax- Gift tax is imposed on the gifts exchanged between the individuals. Gift tax is applicable when the amount of gift exceeds Rs. 50000 in any particular financial year. So gifts up to the value of Rs. 50000 is exempt from tax and also gift from specific relatives like parents, grandparents, brother, sister etc. are also not liable for tax.

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Indirect Taxes

Indirect taxes are the taxes which are levied on sale of goods and services. These taxes are not directly born by the selling person but collected from the purchaser and then deposited to Government Authorities. The major categories under this head includes the following-

1.     Custom Duty- This tax is charged on import of goods into India. This tax is governed and levied by the Central Government. All imports are liable to custom duty as per the rates prescribed under the Act.

2.     Excise Duty- This tax is levied on manufacturing of goods in India. Any goods produced in India is liable to Excise Duty and it is to be paid by the manufacturer.

3.     Goods and Service Tax (GST)- This is the significant tax regime being introduced by the central government. This tax abolish the various types of indirect taxes like, entry tax, VAT, service Tax etc. It is considered as a comprehensive tax which covers the sale of goods as well as sale of services.

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Governing Authorities

Indian tax structure is composed of different taxes so the governing authorities are also divided accordingly

1.     Direct taxes are being governed by the CDBT i.e. Central Board of Direct Taxes. All direct taxes are being governed, managed and administered by CBDT.

2.     Excise duty and Custom duty is being governed CBEC i.e. Central Board of Excise and Custom. CBEC controls and manage the whole process of Custom and excise in India.

3.     After the introduction of GST law in India, a separate governing body is established as CBIC i.e. Central board of Indirect Taxes and Customs. CBIC will be responsible for supervising all the formulation and direction related to GST.