What is Tax? What Are The Types of Taxes? The Government makes many plans for the Growth & Development of the country. To Implement, Commence and Execute Those Growth Schemes & Development Plans, Govt requires large amounts of Money.

For Implementing these schemes Government Charges different types of Taxes & The Money that is received by the Govt as Tax collections are then used to fund all those Growth and Development Schemes as decided. Collection of Tax is the biggest revenue source for Government.

Types of taxes. ( What is Tax? What Are The Types of Taxes? )

Taxes are divided into two parts. Direct tax & Indirect Tax .

What is Direct Tax ?

Direct Taxes are the taxes which are paid directly by the taxpayer Whenever Their is a Generation of any Income.

Examples of Direct Tax : –

Income Tax, Wealth Tax, Professional Tax, Gift Tax etc.

What is an Indirect Tax ?

Indirect Taxes are the taxes levied on the goods or services that we purchase and is not paid directly by the taxpayer. it is collected by an intermediary from the person who bears the ultimate economic burden of The tax.

Examples of Indirect Tax : –

Central sales tax, value-added tax, service tax, excise duty, GST etc.

The types of taxes listed above are in accordance with the existing Tax Structure. let’s learn more about Taxes.

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What is GST ?

GST Means Goods and Services Tax.

It means we are paying the tax to the central and state governments for getting the goods and services. These both are called as taxable supply.

In our old tax system, we had two types of taxes, which are Direct and Indirect taxes. While The Direct Taxes are still in practice the way they were earlier, Indirect taxes is been replaced by GST.

Under GST, we have Central GST and State GST or Integrated GST. In Central GST, we will pay taxes to the central government and in state GST, we will pay taxes to the state government.

(IGST) Integrated GST means, when the goods that is manufactured in one state and then moves to another we have to pay the Integrated GST. This IGST will be divided equally between the two states. When we pay the IGST, then you don’t need to pay the State GST.

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What is Tax? What Are The Types of Taxes?

Income Tax

If the income earned in India by an individual, Institute or any authorized Industry exceeds the limit specified under the Income Tax Act, Income tax is levied on it by the central government in India.

Income tax is levied under following two acts –

1) Income Tax Act 1961 which came into force on 1st April 1962

2) The Act passed every year by Parliament which makes financial provisions.

Every year some time in February, The Finance Minister presents the budget for the next financial year. it has proposals for the income tax rates & once Parliament passes the budget the proposed rates become applicable in the following year income tax rates. The Income Tax Rates are fixed every year in the budget.

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What is Tax? What Are The Types of Taxes?

Important Terms Related To Tax –

i) Assessee : A person liable to pay income tax according to the income tax rules is termed as an assessee.

ii) Financial Year : The period of one year during which the taxable income has been earned is called a financial year. In India, at present the financial Year is from 1st April to 31st March.

iii) Assessment Year : The Financial Year immediately following a particular financial year is called the assessment year the tax payable for the previous Financial year is calculated during the current year that is the assessment Year.

Financial year and assessment year can be understood from the Examples Below :-

a) For The Financial year 2016 and 2017 i,e 01st April 2016 to 31st March 2017, Its assessment year is 2017 to 2018.

b) For The Financial year 2017 to 2018 i,e 01 April 2017 to 31st March 2018, Its assessment year will be 2018 to 2019.

iv) Permanent account number (PAN) : On applying for it every taxpayer gets a unique Ten Digit Alpha-Numeric Number from the Income tax Department. We are required to mention this number in many important documents and Financial transactions. It is binding to write our pan on the chaalan used for paying our Income tax to the IT department or our income Tax returns and other official correspondence. Pan card can also be used as A proof of identity.

v) Computation of Income Tax : Since, Income Tax is a tax levied on income, it is necessary to know about the different sources of income. There are five main heads of income, which are income from salary, income from house or property, income from business or profession, income from capital gains & income from other sources.

vi) Gross total Income : Important considerations for computing the income tax payable by a salaried employee. The total annual income that is gross Total income is taken into account for calculating the tax payable according to the sections 80C, 80D, 80G etc of the Income Tax Act some reductions can be availed from the total annual income. The amount remaining after these deductions are made is called taxable income. Income tax is levied on this taxable income.

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What is Tax? What Are The Types of Taxes?

Every year the rules for computing income tax are changed hence it is important to know the latest rules when actually calculating the tax payable.

No tax is levied up to a certain limit of taxable income this is called the basic exemption limit.

Farmers income from agricultural produce is exempt from taxation.

Under Section 80G of IT Act donations to the Prime Minister’s Relief Fund, chief ministers relief fund and certain other donations recognized to institutions or organizations are exempt from taxation.

Under Section 80D, installments of premium for health insurance are exempt from taxation. Generally the maximum permissible deduction to various kinds of savings under Section 80C is rupees one lakh fifty Thousand.

Reductions from Annual income according to various rules. general Provident Fund (GPF), Sukanya samruddhi scheme for girls rupees 1.5 lakhs, Investment in the post department for five years, National Savings Certificate scheme (NSC), life insurance policy. Health insurance, Tuition fees for two children, Public Provident Fund (PPF), Housing loan principal, Mutual Fund, etc are a Few Options Where a Tax Payer can get Exemption or reduction from the Total Taxable Income.

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Tax rates according age of tax payers are fixed in each year’s budget. samples showing tax rates for different income slabs are given below.

What is Tax? What Are The Types of Taxes?

I) Individuals up to the age of Sixty Years :

i) Income Tax is Nil, for Income of,up to, Rupees Two Lakh and Fifty Thousand, Education Cess is nil, secondary and higher education Cess is nil

ii) For the Income slab of Two lakh fifty thousand and one Up to Five lakhs, The income tax is five percent, that is on taxable income minus Two Lakhs and Fifty Thousand, Education Cess is 2 percent of income tax and The Secondary and higher education Cess is one percent of income tax.

iii) Taxable income slab Of five lakh and one rupees Up to Ten lakhs, The Income tax is Rupees Twelve Thousand Five Hundred plus Twenty percent on taxable income Minus 5 lakhs, Education Cess is 2 percent of income tax, Secondary and higher education says is one percent of Income tax.

iv) Taxable income slabs in rupees for more than 10 lakhs, the income tax is Rupees one lakh twelve thousand five hundred plus 30 percent on taxable income minus Ten lakhs, Education Cess is two percent of income tax, Secondary and higher education Cess is one percent of income tax, surcharge equal to ten percent of income tax payable by individuals having an annual income of 50 lakhs to One Crore rupees and fifteen percent of Income tax by individuals having an annual income greater than One Crore Rupees.

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What is Tax? What Are The Types of Taxes?

II) Senior citizens aged 60 to 80 years :

i) Income tax is nil for Income slabs of upto 3 lakhs, education Cess is nil, Secondary and higher education says is nil.

ii) Taxable income slab 3 lakh and 1 rupees to 5 lakhs, Income tax is 5 percent that is on taxable income minus 3 lakhs, Education Cess is 2 percent of income tax, Secondary and higher education says is 1% of income tax.

iii) Taxable income slabs rupees 5 lakh and 1 to 10 lakh rupees, Income tax is rupees 10,000 plus 20 percent on taxable income minus 5 lakhs, Education Cess is 2 percent of income tax, Secondary and higher education Cess is 1% of income tax.

iv) Taxable income slab in rupees more than 10 lakhs, Income tax is rupees 1 lakh & 10000 plus 30 percent on taxable income minus 10 lakhs, Education Cess is 2 percent of income tax, Secondary and higher education Cess is 1% of income tax, surcharge equal to 10% of income tax payable by individuals having an annual income of 50 lakhs to 1 crore rupees and 15 percent of income tax by individuals having an annual income greater than One crore Rupees.

Click Here to Visit The Official Page of Income Tax E-Filing WebSite

Click Here to Visit The Official Page of GST E-Filing Website

Thank You

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