In a layman language tax is money that an individual or an entity provides or offers to the government of a country so that this money can be used for economic, infrastructural development or to provide various services to the population of a country. The government of the country is has given authority to collect tax and spend it to run and develop the country.
Tax is a vast concept, so let’s understand the different types of tax.
Direct tax is a tax that an individual or an organization directly pays to the government of a country differently. A direct tax can not be passed to another person or an entity as the liability to pay will be with the same person. Below is the different manner in which direct taxes are paid.
TAX ON INCOME AND PROFESSION :
Any income whether it is as a salary or any income from the business activity will be liable for the tax. Different people are taxed at different rates for business income e.g. Business Income of Individual/HUF is taxed as per tax slab rate of Individual/HUF whereas the Business income of Corporates are taxed at the rate applicable to Corporate (depending turnover, business, foreign or local)
TAX ON INCOME FROM HOUSE PROPERTY:
Any income earned from house property is taxable under Income from House property. A house property can be any land/building as a house, shop, office, factory, and/ or any land attached to the building as a parking lot, garage, auditorium, playground, gymkhana, etc. Many types of house property are calculated in different ways. House property used for residence or business and profession of the House property owner is not chargeable to tax under income from house property.
TAX ON CAPITAL GAIN:
Any income from the selling of capital assets such as stock, bond, gold, Land, Property, etc. will be termed as capital gains. Such income will also be taxable under Capital gain tax under the income tax act. A capital gain may be short term (12 months or less for Securities and 24 months or less for an immovable property) or long term.
Tax on security transaction:
Any securities transacted through a recognized stock exchange will be tax payable under the income tax act. The tax is not payable on an off-market transaction or commodities, or currency transactions. There are different tax charges on different transactions. The current tax rate on security transactions 0.01 %.
Tax on gambling income:
Gambling income is money earned from any kind of lottery winnings, horse races, etc which is an uncertain income. Such income is fully taxable and must be reported under the income tax return. This income is taxable with a flat rate of 30% with surcharge.
For e.g KBC Contest-Winning, Indias Got Talent Show Winning, etc.
Indirect tax is a tax that is levied on goods and services & not on the income and profits. This tax is collected by one entity of the supply chain and paid to the government, but it is passed to the consumer as a part of the price of goods and services. So ultimately the consumer pays the indirect tax on goods and services by paying more of the purchase price.
Earlier it had different types as sales tax, service tax, VAT, etc, but now as per New Tax Rule in 2017, all these are combined under one tax as GST (goods and service tax).
GOODS AND SERVICE TAX (GST):
GST means the tax levied on goods and services. Gst is not paid by the manufacturer or seller of goods, but rather they include the GST amount into the price of a product and then the customer indirectly pays taxes to the government. So it the customer who has to bear this tax when they buy goods and services. GST was brought with the revolutionary change in India’s biggest tax system. GST replaced the indirect taxes such as sales tax, VAT, service tax, excise, etc. Gst brought more freedom for goods to move across the borders, as earlier it was a barrier for commercial trade
CGST (CENTRAL GOODS AND SERVICE TAX ) & SGST(STATE GOODS AND SERVICE TAX):
CGST is the tax charged on intrastate (within state) supply of goods and services by the central government and also SGST is the tax charged on the same supply i.e intrastate supply by the state government.
In such cases, an invoice is made with both the separated taxes that is CGST and SGST with an equal proportion of amount.
CGST is governed by the CGST ACT, 2017 whereas SGST is governed by the SGST ACT 2017.
For e.g – Mr. Dinesh is a goods dealer in Maharashtra sold goods to Mr.B who is also a goods dealer in Maharashtra worth Rs. 50000. The GST rate applicable on goods is 18% i.e 9% CGST and 9% SGST.
IGST (INTEGRATED GOODS AND SERVICE TAX):
IGST is the tax charged on interstate (outside the state ) supply of goods and services. Here the center collects IGST and then equally shares the tax with the state government too. The invoice is made with only one tax i.e IGST.
IGST is governed by IGST ACT,2017.
UTGST (UNION TERRITORY GOODS AND SERVICE TAX):
UGST is also a tax charged on intrastate (within state) supply of goods and services. It is applicable only under the union territory state of INDIA. The tax is collected by the central government and governed by UTGST ACT, 2017
Custom is the tax charged on import and export of goods and services between the countries. Whereas, the major portion of custom is governed under GST. The rate of customs duty is either specific or ad valorem basis i.e on the value of goods.
BCD (BASIC CUSTOMS DUTY):
Basic Customs Duty is a type of custom duty or tax imposed under the CUSTOM ACT, 1962. Basic custom duty varies for different items from 5% to 40%. The integrated tax on goods shall be in addition to the applicable Basic Customs Duty (BCD) which is levied as per the Customs Tariff Act. Also, GST compensation cess may be leviable on certain luxury and de-merit goods under the Goods and Service Tax(Compensation to States) CessAct, 2017.