In India, the tax structure is divided into two main categories: Direct Taxes and Indirect Taxes. Each category comprises various taxes levied by the central and state governments. Here’s a detailed classification of the tax structure in India:
1. Direct Taxes: Direct taxes are imposed on individuals and entities based on their income, profits, or gains. The responsibility of paying these taxes falls directly on the taxpayer. The major direct taxes in India are:
a. Income Tax: – Income tax is levied on the income earned by individuals, Hindu Undivided Families (HUFs), firms, companies, and other taxable entities. The income tax rates vary based on the taxpayer’s income slab, and different tax deductions and exemptions are available to reduce the taxable income.
b. Corporate Tax: – Corporate tax is applicable to domestic and foreign companies operating in India. The rate of corporate tax varies based on the turnover or net profit of the company.
c. Capital Gains Tax: – Capital gains tax is levied on the profits earned from the sale of capital assets such as property, stocks, mutual funds, and other investments. Capital gains can be categorized as short-term or long-term based on the holding period of the asset.
d. Securities Transaction Tax (STT): – STT is a tax levied on the purchase and sale of equities and equity-oriented mutual funds in the Indian stock markets.
e. Dividend Distribution Tax (DDT): – DDT is a tax levied on companies that distribute dividends to their shareholders. The tax is paid by the company before distributing dividends to the shareholders.
f. Wealth Tax (Abolished): – Wealth tax was a tax levied on the net wealth of individuals and HUFs. However, it was abolished with effect from the assessment year 2016-17.
2. Indirect Taxes: Indirect taxes are levied on the consumption, sale, or use of goods and services. The burden of these taxes is ultimately passed on to the end consumers. Indirect taxes in India are further divided into Central Indirect Taxes and State Indirect Taxes.
a. Central Indirect Taxes: – Central Excise Duty (Abolished): Excise duty was levied on the manufacturing of goods. However, it was abolished with effect from the implementation of the Goods and Services Tax (GST). – Customs Duty: Customs duty is levied on goods imported into India and certain goods exported from India. It aims to regulate imports and protect domestic industries.
b. Goods and Services Tax (GST): – GST is a comprehensive indirect tax levied on the supply of goods and services. It replaced multiple central and state indirect taxes and streamlined the indirect tax regime in India. GST has several components, including Central GST (CGST), State GST (SGST), Integrated GST (IGST) on inter-state transactions, and Union Territory GST (UTGST).
c. State Indirect Taxes: – Value Added Tax (VAT) (Replaced by GST): VAT was levied by state governments on the sale of goods within the state. With the introduction of GST, VAT was subsumed into the GST structure. – Central Sales Tax (CST) (Abolished): CST was levied on inter-state sales of goods. It was abolished with the implementation of GST.
d. Customs Duty on Imports: – In addition to the central customs duty, states may levy additional duties on certain imports, known as Additional Customs Duty or Countervailing Duty (CVD).
The tax structure in India is subject to changes and amendments by the central and state governments to meet revenue requirements, economic objectives, and simplify tax administration. Taxpayers must comply with the applicable tax laws and file returns accurately and on time to fulfill their tax obligations. Seeking professional advice from tax experts or chartered accountants is advisable for tax planning and compliance.