India being a developing nation, a front-runner in the world’s economic and financial markets, it requires viable sources of revenue to fund its various development projects. As her citizens, it is important to educate ourselves on how the government revenue is generated. Taxes in India, makes up a large chunk of government revenue, which is then spent on various development projects across the country. It is our job as citizens to do our due diligence, by paying our share of taxes.
One of the prominent methods of collecting taxes is by directly charging the citizens. Direct taxes are those taxes that are directly imposed on the person. This is a tax that is imposed on the people and the organisations directly by the government. The difference between a direct tax and an indirect tax is that a direct tax cannot be transferred and has to be paid by the person who it has to be levied upon.
What are the types of Direct Taxes in India?
Direct tax in India can be broadly divided into three categories namely, Income Tax, Corporation Tax, and Wealth Tax. Here is a detailed description of each of these direct taxes.
Income Tax – This is most common tax payable by Indians. Depending on the level of income of the individual, the tax charged varies. Income that falls under the bracket of this tax is known as “taxable income”. This tax can be charged to individuals, corporate firms, companies, and trusts. There are various ways in which you can save money on income tax in India. In order to calculate the direct tax charged on your income, you can use the resources of an income tax calculator.
Wealth Tax – This is the tax charged on the benefits derived from the ownership of property. Wealth tax is charged regardless if the property is earning income or not. It is charged every year on the current prevailing market rate of the property. However, “working assets” such as stocks in the market, gold deposit bonds, commercial properties are not chargeable under Wealth Tax
Corporation Tax – Companies that exists independent of their shareholders fall under the milieu or Corporation Tax. This tax is charged on royalties, interest, and gains from the sale of capital assets in the country. The rate of the tax varies depending on weather the company is incorporated in India or abroad. For domestic companies the tax charges is 30% of total revenue gained in that financial year.
The Direct Tax insures equality in the distribution of wealth by charging a higher rate for those with broader shoulders. There is no uncertainty involved as everyone knows how much he or she has to pay. It also makes the citizens more socially involved in the functioning of the government and the development of the country as a whole.
Get a detailed explanation on tax sections under 80C, 80CCC & 80CCD here.