Direct and Indirect Tax in India – Quick Introduction to Income, Wealth and Service Tax

April 27, 2012 by  Filed under: Taxes 

Direct

  • If you pay the tax directly to the government, it’s Direct-Tax.
  • Example:
    • Income, and
    • Wealth Tax
  • It’s not mandatory or common for all the citizens to pay Direct-Tax in India.
  • Rates are based on Payer’s Gender, Age, his normal Place of Residence & Income level.

Indirect

  • If you pay tax indirectly while purchasing goods or paying for services, it’s Indirect Tax.
  • Example:
    • Sales
    • Service
    • Entertainment Tax, etc.
  • Rates are based on Product/Service type. Not based on Payer.

Income Tax

Indian Income Tax statute, mainly answers the following questions,

  1. Who is liable to pay?
  2. What is the period for which the tax is to be paid?
  3. What is the rate or amount payable?
  4. On what amount, the tax is payable?

The four questions discussed above are answered, under the Income Tax Act, as under: –

  1. Who is liable to Pay? – Person whose total taxable income exceeds the basic exemption limit is liable to Pay. The current exemption limit is Rs. 2,00,000.
    Person includes:

    1. an Individual
    2. a Hindu Undivided Family
    3. a Company
    4. a Firm
    5. an Association of Persons or Body of Individuals, whether incorporated or not,
    6. a Local Authority, and
    7. every Artificial Juridical Person, not falling within any of the above classes.
  2. What is the period of payment? – Previous Year, subject to certain exceptions. The previous year for the Assessment Year 2012-13, will be from 01 April, 2011 to 31 March, 2012.
  3. What is the rate? At the rate or rates enacted by Central Act for every Assessment Year. It’s varies between 10% – 30% of taxable income excluding the basic exemption limit applicable to the tax payer.
  4. On what amount, the Income-tax is payable in India? – Tax is payable on Total taxable Income earned by Payer during the Previous Year. Total Income as per Indian Income Tax Act, includes five heads of income as given below:
    1. Salary Income
    2. Income from House Property
    3. Capital Gains
    4. Income from Business or Profession, and
    5. Income from Other sources.

Wealth Tax in India

  1. Who is liable to pay? – Person whose net wealth exceeds basic exemption limit on the valuation date (31 st March). The current exemption limit is Rs. 30 Lakhs. Person includes,
    1. an Individual
    2. a Hindu Undivided Family
    3. a Company, both private or public.
  2. What is the period of payment? Valuation date., the last day of the previous year for the Assessment Year. Previous year for Assessment Year 2012-13 will be from 01 April, 2011 to 31 March, 2012. Valuation date for the AY 2012-13, is 31.03.2012.
  3. What is the rate or tax amount payable? Rate for the AY 2012-13, is 1% of Net Wealth (in excess of the exemption limit, viz., Rs.30,00,000) of the tax payer.
  4. On what amount, the Wealth tax is payable in India? – Net Wealth. Net Wealth is defined as given below
    Value of Assets – (Exempt Assets + Liabilities for Taxable Assets) – Clubbed Net Wealth as per Sec 4

Taxable Service
There is no separate Act for Service Tax in India. It is imposed under Finance Act.

  1. Who is liable to pay? – Service Providers who is providing taxable services is liable to pay, if the annual turnover exceeds the basic exemption limit. The current exemption limit is Rs. 10 Lakhs.
  2. What is the period of payment? –
    • Quarterly for Individuals, Proprietary or Partnership Firms, and
    • Monthly (usually 5th of following month) for all other service providers.
  3. What is the rate or tax amount payable? The Service Tax Rate for the financial year ending 31.03.2013, is 12.36%.
  4. On what amount, the Service tax is payable in India? – 12.36% of Value of Taxable Service. Value of Taxable Service means, the gross amount received by the service provider for the taxable service provided or to be provided by him.

Conclusion

Other Indirect taxes are not common for all. It depends on Individual State Tax Policy.
The details we have seen so far are very basic. Each term I used has a very lengthy definition.
Anyway, I hope you had the Bird’s eye view of various Tax system In India.
Also with this introduction, now you can clearly understand the difference between Direct & Indirect Taxes in India.

If you are a first time Indian Tax Payer, you can apply for the limited time “Free Income Tax Return Filing” offer http://www.accounting-n-taxation.com.

In addition you will get lot of free tax information like Tax Dead lines, Online Tax Calculators, FAQ related to taxation, various tax Deductions available etc.,

Article Source:
http://EzineArticles.com/?expert=Tharani_Shankar

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