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An overview of Tax system

Taxes are financial charges imposed on individual or company by central or state government which the taxpayer is bound to pay by law. Failure to pay , evasion or resistance to collection is generally punishable by the law.Taxes collected by nation is used by government for various purpose including development of nation, welfare measures for the society, enforcement of law and order, maintaining defense system etc.

Tax system can be broadly classified into two following types :

Direct Tax :

This type of tax is directly imposed in individual and directly paid to government. It is personal liability of the individual .In India it is controlled by Central Board of Direct Taxes (CBDT). Important direct taxes are as follow :
  • Income Tax : It is the most known type of tax where by every individual who is earning above a threshold has to pay to government a certain percentage of his income.
  • Wealth Tax : This is in addition to the income tax paid by individual. It is levied on net wealth of individual. Net wealth means all assets less loans taken to acquire those assets. Generally people below a certain level of net wealth are exempted from this tax. It is meant to take contribution from wealthier section of the society in the development of the nation.
  • Capital Gain Tax/Property Tax : This is tax on gain in capital after selling of property, shares, stocks, Bonds, Precious materials etc. Tax rates are different for long term capital gain and short term capital gain.
  • Gift Tax : Amount exceeding a particular value received from any one other than relative as gift is considered as Income from other sources and are taxable. There are certain categories like marriage gifts are exempted from Gift Tax.
  • Corporate Tax : Corporate Tax is tax on income of corporate operating in the country . It is levied on domestic as well as foreign companies.
Indirect Tax :

This type of tax is not being paid directly paid to the government .This type of tax is being collected by different group of person and the liability rests with the person who collects it . After collecting tax from various clients and consumers the Tax payer pays the tax collected to the government . In India it is controlled by Central Board of Excise and Customs (CBEC). Important types of Indirect taxes are as follows:
  • Service Tax : Service Tax is tax levied on service providers. It is levied on total amount paid by costumers to the service provider. Services such as Beauty parlor , Advertising , Health sector etc under Service Tax net.
  • Custom Duty and Octroi : Custom duty is indirect tax paid on goods imported to / exported from the country. It is generally paid at the point of entry .
    Octroi is tax on goods entering into municipality area or any other such jurisdiction for use, consumption or sale.
  • Excise Duty : Excise duty is tax levied on goods produced within the country for domestic consumption. It is Inland tax while Custom duty is border tax .
  • Sales Tax : Sales tax is form of tax which is imposed by government on sales or purchase of particular commodity within the country. It can be imposed both by central government (Central Sales Tax) and state government(Sales Tax). 2005 onward most state government in India have supplemented sales tax with VAT.
  • Value Added Tax(VAT) : VAT is a system of indirect taxation, which has been introduced in lieu of sales tax. A value-added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to the goods, from an accounting point of view, by this stage of its manufacture or distribution. It is levied at each stage in the chain of production and distribution from raw materials to the final sale based on the value (price) added at each stage. It is not a cost to the producer or the distribution chain members, and whereas its full brunt is borne by the end consumer, it avoids the double taxation (tax on tax) of a direct sales tax. It differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer.
  • Security Transaction Tax(STT) : STT is levied on every transaction done at stock exchange in the form of buying/selling of shares , derivatives , mutual funds etc.
  • Goods Service Tax(GST) : GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level.Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST is in process of getting implemented in India and is supposed to bring revolution in taxation sector through bringing tax reforms and streamlining tax system of the country. It will replace the existing multiple tax structures of Centre and State taxes. Through GST service tax and sales tax will be merged and uniform system will be in place.

Comments

  1. Thank you so much sir.... u r grt...:)

    ReplyDelete
  2. Gst will replace sales n service tax right ?

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  3. Yes...making taxation system uniform across the country...

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  4. Sir I hv a doubt abt custom duty if a person is paying custom duty directly to officer at the entry point...how it is indirect tax. Please clearify this point??

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  5. Custom duty is ultimately collected from the end user i.e. customer by the person who pays it to custom duty officer. Like all indirect taxes it is on end user.

    ReplyDelete
  6. Ok but sir it will nt apply on an individual purchasing for his own consumption frm other country na??

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  7. It will for certain categories of goods. In that case it may be considered as direct tax but in general it is indirect tax.

    ReplyDelete
  8. Ok thnx sir fr ur grt help... :)

    ReplyDelete
  9. http://mospi.nic.in/Mospi_New/upload/statistical_year_book_2011/SECTOR-1-INDIA%20AN%20OVERVIEW/CH-06-DIRECT%20&%20INDIRECT%20TAXES/DIRECT-INDIRECT%20TAX-WRITEUP.pdf

    as per above link it is Indirect tax ...though at many places it is reffered as direct tax as well

    ReplyDelete

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