Tax is a mandatory financial charge or fee levied by the Indian government on individuals and organisations. It is a significant source of income for the government, which is utilised in public expenditure programs, supporting the growth of the country and its populace.
The taxation system in India is divided into a three-tier structure, including state, central, and municipal corporations. Every levied tax in India is backed by a law passed by the State legislature or the Parliament.
Different forms are used to pay taxes, and the types of tax in the country differ based on implementation and how the authorities collect them.
So, scroll down to learn about the different types of taxes in India to carry out your civic duty.
Tax in India is broadly divided into two categories depending on their submission process: direct tax and indirect tax. While direct taxes are levied on earnings in India, indirect tax is imposed on expenses.
Even so, there are other types of taxes in India that the central government has introduced to serve a specific agenda. These are called ‘other taxes’ and are imposed on both the given taxes. Examples of this type of tax include the Infrastructure Cess Tax, Swachh Bharat Cess Tax, Krishi Kalyan Cess Tax, etc.
As the name implies, direct taxes are directly paid to the government by individuals and corporate entities. These are overlooked by the Central Board of Direct Taxes (CBDT) and cannot be transferred to any other person or entity. Direct taxes are levied during each assessment year, and you can also receive some benefits under the various sections of this tax.
The direct tax amounts to almost 50% of the government’s revenue. Some of the most common types of these taxes are as follows:
Income tax is among the most essential and common among different types of taxes in India. It applies to the personal income individuals and companies earn in a given fiscal year.
Depending on the total taxable income in an assessment year and your age, every eligible person is allotted an income tax slab. The amount you have to pay as part of the income tax depends on the tax slab you fall under and the different types of income tax.
The corporate tax, also called Corporation tax, is a direct tax levied on the revenue or profit an enterprise makes from their business. Both private and public companies registered under the Companies Act 1956 are charged with this type of tax. Domestic firms and foreign corporations are also liable to pay corporate tax.
Presently, domestic companies with an annual turnover of less than ₹250 Crore are charged a rate of 25%, whereas those with more turnover are charged 30%. In addition, the Income Tax Act states a surcharge of 7% if the net income ranges from ₹1 Crore to 10 Crore. While if the income increases by ₹10 Crore, the surcharge amounts to 12%.
Any perks or benefits given to you by your employer, such as rent-free accommodation, free electricity, car, etc., are taxed under the perquisite tax. This depends on how you are using the privileges.
However, keep in mind that there are both taxable and non-taxable perquisites.
Exempted perquisites typically include travel allowance, laptop or desktop provided by the organization for official use, medical help, free memberships to clubs, and contribution to PF, among others.
Capital gains tax applies to the profits earned from the sale of a capital asset. Such gains can be incurred either by selling a real estate property or investing. Depending on the duration, capital gains are of two kinds:
The government imposes the securities transaction tax on profits earned from securities such as futures, equities, and options carried out in the domestic stock exchange market. The rate of the tax is different for each type of security.
An indirect tax is charged on the consumption of goods and services. The government collects this tax from sellers and retailers of the products and services. They, in turn, shift the responsibility to buyers.
When you purchase a product or service, you not only pay the price of the product but also the tax. Hence, you are indirectly paying the tax to the government.
The most common types of indirect taxes in India are as follows:
A sales tax is levied on the items produced in India or imported from outside. This tax is imposed on the product’s seller, who then collects it from the person buying by including the tax amount in the product’s price. Generally, all states in India have their individual sales tax.
The Service Tax or Goods and Services Tax (GST) came into the picture in full effect on 1st July 2017 and is applied to the cost of specific goods and services sold in the country. The business adds the GST to its offering, and a customer who purchases the same pays the sales price inclusive of the GST amount.
The GST portion is further collected by the seller or business and passed on to the government.
One of the prime things to note is that GST has clubbed together different types of indirect taxes in India, such as:
Customs duty is a type of indirect tax charged on products and items imported from abroad. It is applied to all those commodities which come via land, air, or sea. The tax is levied per the value of goods, weight, dimensions, and other related criteria. Its purpose is to ensure that the goods entering the country are adequately taxed and paid for.
The entertainment tax is an indirect tax levied on commercial shows, sports events, movie tickets, amusement parks, theatre shows, music festivals, exhibitions, and other private events or festivals. The income tax rate varies depending on the state.
Taxes are an essential contribution made for the betterment of the country and society. The money collected is used by the governments, as mentioned, to provide resources to the people and uplift society.
Even so, to minimise the burden of taxes on individuals, the government has come up with particular deductions, tax exemptions, and tax deductions for tax-saving investments.
Paying taxes and filing ITR further enables you to acquire loans faster, have swift VISA processing, and prevent profound implications.
As such, to ensure responsible tax filing, find the new tax slabs for the assessment year 2024-2025.
Tax slabs for Hindu Undivided Family (HUF) or individual taxpayers less than 60 years of age (both females and males):
| Income Tax Slab | Tax Rate |
|---|---|
| Income up to ₹ 2.5 lakhs | No tax |
| Income between ₹ 2.5 lakhs-₹ 5 lakhs | 5% |
| Income between ₹ 5 lakhs-10 lakhs | 20% |
| Income higher than ₹ 10 lakhs | 30% |
Tax slabs for individuals more than 60 years but below the age of 80 years and HUF
| Income Tax Slab | Tax Rate |
|---|---|
| Income up to ₹ 2.5 lakhs | No tax |
| Income between ₹ 2.5 lakhs-₹ 5 lakhs | 5% |
| Income between ₹ 5 lakhs-10 lakhs | 20% |
| Income higher than ₹ 10 lakhs | 30% |
Tax slabs for individual payers more than 80 years of age
| Income Tax Slab | Tax Rate |
|---|---|
| Income up to ₹ 2.5 lakhs | No tax |
| Income between ₹ 5 lakhs-10 lakhs | 20% |
| Income higher than ₹ 10 lakhs | 30% |
Surcharge applicable to Income tax for the AY 2024-2025
| Income Tax Slab | Tax Rate |
|---|---|
| ₹ 50 lakhs to 1 Crore | 10% |
| ₹ 1 Crore to ₹ 2 Crore | 15% |
| ₹ 2 Crore to ₹ 5 Crore | 25% |
| ₹ 5 Crore to 10 Crore | 37% |
| More than ₹ 10 Crore | 37% |
| Income Range | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 to ₹6,00,000 | 5% |
| ₹6,00,001 to ₹9,00,000 | 10% |
| ₹9,00,001 to ₹12,00,000 | 15% |
| ₹12,00,001 to ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Note: While calculating tax as per the new regime, standard deduction and deduction under section 80 are not applicable.
The government of India has introduced new changes in the tax regime under the income tax slabs by increasing the basic income exemption limit from INR 2.5 lakh to INR 3 lakh. While the surcharge rate has been minimized from 37% to 25%.
Under the new tax regime in India, the income tax slabs have been reduced from six to five. Aside from this, the rebate eligibility ceiling has been enhanced from INR 5 lakh to INR 7 lakh. Any person opting for the new tax regime effective from 1st April 2023 will have to pay zero taxes, provided their income does not exceed INR 7 lakh.
Investments in specific instruments can decrease your taxable income, referred to as tax-saving investments like ELSS (equity linked saving schemes), life insurance, etc. Even the Indian government offers few tax-saving investments such as National Pension Scheme, Public Provident Fund, etc.
Yes, you’re required to file your income tax return if your income increases by INR 3,00,000 in a given financial year.
Taxable incomes are those charged under the Income Tax Act, whereas exempt incomes are not chargeable. This means they are not included in the calculation of total income.
Under the Income Tax Act, there are specific payments, including interest, salary etc., in which the person who makes the payment is allowed to deduce tax. This is also referred to as TDS or tax deducted at source.
In the case of the equity share sale, the long-term capital gains tax rate is 10% if the sale is more than INR 1,00,000. Whereas, the tax rate is 20% in sales other than equity shares
The Income-tax Act section 14 have categorised taxpayer income under five different headings:
Rebate under section 87A is only available to individuals who are residents of India, and as such, non-residents are not allowed to claim the rebate.
The Corporate tax, also known as corporation tax, is collected by the central government in India from both public and private enterprises registered under the Companies Act 1956.
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
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