Taxation system in India:
The entire taxation system of India comes under the central government except some points. Direct as well as indirect tax is levied on Indian civilians through some set of acts and rules. Each every duty or tax is governed by the specific law. Every year, the finance minister comes with the budget to make small yet suitable amendments in the rules of the act.
There are two broad categories in which Indian taxation system can be divided, briefs idea of the same are:
- Direct tax: Direct tax includes all charges that are directly charged to and collected from the civilians. The direct tax system includes two major areas of the revenues that are:
- Income tax
- Wealth tax
- Indirect tax: Opposite of the direct tax, indirect taxes are levied on civilians in an indirect form. The special feature of the indirect tax is that the burden of the tax is ultimate consumer. The indirect tax includes:
- custom duty
- service tax
- excise duty
- Sales tax
Who are taxpayers?
Any income accruing or arising in India is payable in India. Before levying any tax in India, the status of a person is considered. This status is described in three areas say ordinarily resident, non-resident and resident but not ordinary resident . Not only individuals but also companies are liable to pay tax if it comes under the area of residential status. In case of companies/firm, residential status of company is decided on the base of its controlling area.
Income tax is levied on the entire income of a resident status person/company/AOP/BOI/Firm. There is two basic conditions and two optional conditions to find out the residential status of a person.
Every person (which denotes individual, company, BOI, AOP, etc.) is liable to pay income tax who exceed the maximum limit of the exemption. There are different rates for different assesse. Every person who falls under the list of tax payer should mandatorily submit the return of income for the previous year. Individual have the choice of paying AMT instead of slab tax rates by following the guidelines. Moreover, after reaching crores, the person is liable to pay surcharge accordingly and can also take the benefit of the marginal tax scheme.
Income tax act 1961 governs the income tax procedures and penalties, whereas wealth tax act rule out the wealth tax mechanism. The concept of wealth tax is leviable on property, jewellery, land, etc. The definition of the asset provided in the act is exhaustive. Education cess is also added in the amount of tax payable.
The corporate tax is leviable on the corporate entities say companies. In the laws, the company has been defined as a distinct artificial person for the purpose of its status calculation. Foreign companies having branches in India also fall in the corporate tax category. For the avoidance of double taxation of the same income, Indian tax system has DTAA with 90 countries across the globe. Companies can also opt for the MAT (minimum alternate tax) scheme of paying 18.5% instead of direct 30%.
The central excise act, 1944 covers all rules and regulations of central excise and service tax. Excise duty is leviable on manufacturing of products. With the excise duty, special excise duty, additional duty is also leviable on some products.
Service tax is applicable on taxable services and listed taxable services are not exhaustive. There is a negative list of services on which service tax is not applicable. Service tax cover a wider area in routine life.
Sales tax includes state wise calculation of tax and the income generated from this tax comes in the account of state government. It is known as central sales tax in common perspective. This tax is leviable on the goods while service tax is applicable on only services.
Future of taxation in India:
The GST bill is proposed and awaiting to permission of parliament houses. It is drastic change in Indian taxation system. It will prove to be a good move for the Indian economy.