Taxation policy is imposed by governments on their citizens to take income for on-going projects to enhance the economy of the country and to increase the standard of living of their own citizens. The authority of the government to impose tax in India is taken from the Constitution of India, which says the power to impose taxes to the Central and State governments. All taxes imposed within India need to be backed by an adequate law passed by the Parliament of the country or state legislature.

Types of Taxes

Taxes are of two different types, direct and indirect taxes. The main difference comes in the way these taxes are imposed. Some are paid directly by you, such as income tax, wealth tax, corporate tax etc. while the others are indirect taxes, such as the value-added tax(VAT), service tax, sales tax, etc.
1.    Direct Taxes
2.   Indirect Taxes

Direct Tax

Direct tax, as described above, are taxes that are paid directly by you. These taxes are imposed directly on an entity or an individual and can’t be transferred onto someone else. One of the bodies that looks after these direct taxes is the Central Board of Direct Taxes (CBDT) which is a important part of the Department of Revenue. It helps with its duties, the support of various acts that govern various ideas of direct taxes. Examples of Direct Taxes are-
a) Income Tax:
This is one of the most famous and least understandable taxes. It is the tax that is imposed on your earning in a financial year. There are many parts to income tax, such as tax slabs, taxable income, tax deducted at source(TDS), reduction of taxable income, etc. This tax is applicable to both individuals and companies. As For individuals, the tax that they have to pay is totally dependent on which tax field they fall in. This field determines the tax to be imposed based on annual income of the assessee and ranges from 0% tax to 30% tax for the high income groups.
The government has fixed various taxes fields for different groups of individuals, commonly general taxpayers, senior citizens (people aged between 60 and 80, and very senior citizens (people aged more than 80).
b) Capital Gains Tax:
This is a tax that’s payable whenever you receive a limited amount of money. It could be from any investment or from the sale of any property. It is generally of two types, Short term capital gains from investments that are held for less than 36 months and Long term capital gains from investments that are held for longer than 36 months. The tax applicable for each is them is also very different and since the tax on short term, gains is calculated on the basis in the income field that you are falling in and the taxes on long term gains is 20%. The interest in this tax is that the gain which doesn’t always have to be in the form of money. It can also be an exchange in kind in which scenario the value of exchange will be considered for the taxation.

Indirect Tax

According to the defination, indirect taxes are those taxes that are imposed on goods or services. They vary from direct taxes because they are not imposed on a person who is paying them directly to the government, instead of that they are imposed on products and are collected by an mediator who is selling the product. The most common examples of Indirect taxes can be VAT (Value Added Tax), Taxes levied on Imported Goods and Sales Tax, etc. These taxes are imposed by adding them to the price of the service or product which ultimately tends to push the cost of the product in the upward direction.a) Sales Tax:-
As the name only suggests, sales tax is a tax that is imposed on the sale of a product. This product can be anything that was produced in India or imported to india and can even cover services rendered. This tax is imposed on the seller of the product who then ultimately transfers it onto the person who buys the product with the sales tax added to the price of the particular product.And the limitation of this tax is that it can be imposed only one time for a particular product, which ultimately means that if the product is sold for second time, sales tax cannot be applied on it.

b) Service Tax:-
Just like sales tax is added to the price of goods sold in India, similarly, service tax is added to services provided in India. In the Indian budget 2015, it was announced that service tax will get increased from 12.36% to 14%. Though it is not applicable to any goods but on the companies that provide services and are collected every month or are collected once every quarter based on how the services are getting provided.

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Banking Professional with 16 Years of Experience. The idea to start this Blogging Site is to Create Awareness about the Banking and Financial Services.

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