Indian Tax System for FY 2017-18

What is Tax?

Tax is an obligatory contribution to the state revenue; the government of India levy on the income of workers and business gains or added up to the cost of some transactions, goods and services.

The government levies taxes on the citizens of the country to produce income for business projects to enhance the country’s economy and to lift up the standard of living of the nationals. The government’s authority to a levy tax in our country is drawn from the Constitution of India that deals out the supremacy to levy taxes to the State as well as Central governments. All the taxes levied within the country require being backed by an escorting law passed by the State Legislature or the Parliament.

Types of Taxes:

There are two types of taxes namely, direct taxes and indirect taxes. The implementation of both the taxes differs. You pay some of them directly, like the cringed income tax, corporate tax, and wealth tax etc while you pay some of the taxes indirectly, like sales tax, service tax, and value added tax etc.

Types of taxes

 Direct indirect tax types

However, apart from these two traditional taxes, there are other taxes also, which has been affected to serve a specific agenda by the country’s Central Government. ‘Other Taxes’ are imposed on both the taxes, direct and indirect tax like the currently launched Swachch Bharat Cess Tax, Infrastructure Cess Tax, and Krishi Kalyan Cess Tax among others.

Other taxes in India

Direct Tax:

What is Direct Tax?

As stated earlier, you pay these taxes directly. The government levy such taxes directly on an individual or an entity and it cannot get transferred to any other person or entity. There is only one such federation that winks at the direct taxes, i.e. the Central Board of Direct Taxes (CBDT) governed by the Department of Revenue. The CBDT has, to assist it with its sense of duties; the backup of several acts that preside over several aspects of the direct taxes.

A few of these acts are as under:

Types of direct taxes in India

  • Income Tax Act:

Income Tax Act is also called the IT Act, 1961. Income Tax in India is governed by the rules set by this act. The income taxed by this act can be generated from any source such as profits received from salaries and investments, owning a property or a house, a business, etc. The IT Act defines the tax benefit you can avail on a life insurance premium or a fixed deposit. It also decides the savings from your income via investments and the tax slab for your income tax. 

  • Wealth Tax Act:

The Wealth Tax Act came into effect in the year 1951 and is in charge of the taxation linked with an individual’s net wealth, a Hindu Unified Family (HUF) or a company. The easiest computation of wealth tax was:

If the net wealth of an individual exceed Rs. 30 lakhs, then 1 percent of the exceeded amount is payable as a tax. It was put to an end in the budget that was announced in 2015. Since then, it has been substituted with a surcharge of 12 percent on the individuals that generate an income more than Rs. 1 crore p.a. It is also pertinent to the companies, which have generated revenue of over Rs. 10 crores p.a. The fresh guidelines radically raised the sum the government would accumulate in taxes as disparate the amount they would accumulate via wealth tax.

  • Gift Tax Act:

This Act was brought into existence in the year 1958 and assured that if a person received gifts or presents, valuables or monetary, he has to pay a tax on those gifts. The tax on aforementioned gifts was sustained at 30 percent but it was put to an end in the year 1998. Originally, if a gift was given, and it was somewhat like shares, jewellery, property etc it was subject to tax. As per the new rules, the present given by the members of the family like parents, spouse, uncles, aunts, sisters and brothers are not subject to tax. Even presents you receive from the local authorities are also exempted from such taxes. If somebody, other than that of the exempted entities, presents you anything, which has a value beyond Rs. 50,000 then the whole gift amount is subject to tax.

  • Expenditure Tax Act:

The Expenditure Tax Act came into existence in the year 1987 and cope with the expenditure made by you, as a person, may incur whilst you avail the services of a restaurant or a hotel. It is appropriate to the entire nation other than Jammu and Kashmir. It asserts that some expenses are liable under the act if the amount is beyond Rs. 3,000 contingent upon a hotel and all the expenses drawn in a restaurant.

  • Interest Tax Act:

This Act of 1974 copes with the tax, which was chargeable on interest produced in some specific situations. In the Act’s last amendment, it is stated that this act is not applicable to interest earned after March 2000.

Here are a few examples of several kinds of direct taxes:

Examples of Direct Taxes:

These are a few of the direct taxes that are paid by you:

  1. Income Tax:

Income Tax is one of the most popular and least implicit taxes. It is such a tax, which is imposed on your income in a fiscal year. There are a lot of facets to the income tax, like taxable income, reduction of the taxable income, tax slabs, tax deducted at source (TDS), etc. This tax is pertinent to both the companies and individuals. For individuals, the amount they pay against the tax is based on the tax bracket they breeze in. This slab or tax decides the tax that an individual has to pay depending upon their annual income and spreading from no tax to 30 percent for the higher income groups.

The government of India has fixed various tax slabs for different groups of people, namely very senior citizens (people who have attained an age above 80 years), senior citizens (people who have attained an age of 60 to 80 years), and general taxpayers.

New Tax Slab of Income Tax for FY 2017-2018 (AY 2018-2019)

Tax slab for HUF and individual tax payers (not more than 60 years of age) (both males and females)

Income Tax Slab

Tax Rate

Income up to INR 2.5 lakhs*

No Tax

Income between INR 2.5 lakhs-INR 5 lakhs

5%

Income between INR 5 lakhs-10 lakhs

20%

Income higher than INR 10 lakhs

30%

*Surcharge: 10% of the income tax, where the aggregate income is between Rs. 50 lakhs and Rs. 1 crore. 15% of the income tax, where the aggregate income is beyond Rs. 1 crore.

Cess: 3% of the aggregate of income tax + surcharge

*Income up to INR 2.5 lakhs is exempted from the tax if you are not more than 60 years.

 

Tax slab for HUF and individual tax payers (60 years or more but not more than 80 years) (both males and females)

Income Tax Slab

Tax Rate

Income up to INR 3 lakhs*

No tax

Income between INR 3 lakhs-INR 5 lakhs

5%

Income between INR 5 lakhs-10 lakhs

20%

Income more than 10 lakhs

30%

*Surcharge: 10% of the income tax, where the aggregate income is between Rs. 50 lakhs and Rs. 1 crore. 15% of the income tax, where the aggregate income is beyond Rs. 1 crore.

Cess: 3% of the aggregate of income tax + surcharge

*Income up to INR 2.5 lakhs is exempted from the tax if you are not more than 60 years.

 

Tax Slab for Super Senior Citizens (80 years of age or more) (both males and females)

Income Tax Slab

Tax Rate

Income up to INR 2.5 lakhs*

No Tax

Income between INR 2.5 lakhs-INR 5 lakhs

No Tax

Income between INR 5 lakhs-10 lakhs

20%

Income higher than INR 10 lakhs

30%

*Surcharge: 10% of the income tax, where the aggregate income is between Rs. 50 lakhs and Rs. 1 crore. 15% of the income tax, where the aggregate income is beyond Rs. 1 crore.

Cess: 3% of the aggregate of income tax + surcharge

*Income up to INR 5 lakhs is exempted from tax if you have attained an age of 80 years

 

Below we have given some tables that list Tax slab rates for FY 2016-2017 (AY 2017-2018). These tax slab rates for income tax can be applied to:

FY 2014-2015 (AY 2015-2016), FY 2015-2016 (AY 2016-2017)

Tax Slab for General Taxpayers:

Income Tax Slab (in INR)

Tax Rate (in %)

0-2,50,000 Lakhs

No Tax

2,50,001-5,00,000

10

5,00,001-10,00,000

20

Above 10,00,000

30

 

Tax Slab for Senior Citizens (age between 60 to 80 years):

Income Tax Slab (in INR)

Tax Rate (in %)

0-3,00,000

No Tax

3,00,001-5,00,000

10

5,00,001-10,00,000

20

Above 10,00,000

30

 

Tax Slab for Super Senior Citizens (age above 80 years):

Income Tax Slab (in INR)

Tax Rate (in %)

0-5,00,000

No Tax

5,00,001-10,00,000

20

Above 10,00,000

30

  1. Capital Gains Tax:

Capital Gains Tax is payable whenever you get a considerable sum of money. It could be from the sale of any property or from an investment. This is generally of two types, namely long-term capital gains from the investment made for a period of more than 36 months and short-term capital gains from the investments made for not more than 36 months. The tax that is applicable for each of these is also different since short-term gains tax is computed basis the income bracket, which you fall in and the long-term capital gain tax is 20 percent. The interesting thing about the capital gain tax is that the profit does not always should be in the money form. It could also happen to be barter in kind in this the worth of the exchange will be taken into consideration for taxation.

  1. Securities Transaction Tax:

It is not a tough nut to crack to know about the proper trading on the stock market, and exchange securities, you stay still to make an extensive sum of money. This too is a mine of income but has its own tax that is called as the Securities Transaction Tax. How is this tax levied? This tax is levied by combining the share’s price and the tax. This means every time you purchase or sell a share, you make payment of this tax. All the securities traded on Indian Stock Exchange, have this affixed with them.

  1. Perquisite Tax:

Perquisites are all the privileges and perks that the employers might pull out to the employees. These civil liberties may include a car provided for your use or a house, given by the company. These perquisites are not just confined to big compensations such as houses or cars; they may even include things such as compensation for phone bills or fuel. The perquisite tax is levied by discovering how the company acquires the perk of how the employee uses it. In case of cars, it might be so that the company provides a car and the employee uses it for both official and personal purposes qualifies for tax while the car used for official purposes only is not eligible for tax.

  1. Corporate Tax:

The income tax a company pays from its revenue earned by it is called a corporate tax. The corporate tax also has a slab of its own, which decides the amount of tax to be paid. For instance, a domestic firm that earns revenue of not more than Rs. 1 crore p.a. will not have to pay such tax. It is also made known as a surcharge and it is different for distinct revenue brackets. This tax is also different for the international companies where this tax may be 41.2 percent of the revenue earned by the company is not more than Rs. 10 million and above.

There are four types of corporate taxes. They are:

 Types of corporate taxes

Minimum Alternate Tax:

Minimum Alternative Tax (MAT) is fundamentally a means for the IT Department to get the companies to make payment of a minimum tax that presently stands at 18.5 percent. This type of tax came into existence when the Section 115JA of the IT Act was introduced. Nevertheless, the companies that are involved in power sectors and infrastructure are exempted from making payment of MAT.

Once the MAT is paid by the company, it can cart the payment forward and adjust against the regular tax payable for the period of the succeeding five-year duration liable to be subjected to specific conditions.

Fringe Benefit Tax:

Abbreviated as FBT, was a tax that was applied to nearly all the fringe benefits an employee receives from its employer. This tax covers several aspects such as:

  • Employee Accommodation, entertainment and welfare, the employer’s expenditure on travel (LTA)
  • Employer Stock Option Plans (ESOPs)
  • The contribution made by the employer to a registered retirement fund
  • Any commute related expenditure or regular commute offered by an employer

The FBT was initiated under the stewardship of the Government of India from April 1, 2005. Nevertheless, Pranab Mukherjee, the-then Finance Minister abandoned it in 2009 while the Union Budget Session 2009.

Dividend Distribution Tax:

This tax was brought in after the end of Union Budget 2007. It is fundamentally a tax that is levied on the companies that depend on the dividend paid by them to their investors. The Dividend Distribution Tax is chargeable on the net or gross income of an investor received from the investments made by them. Presently, the DDT rate is 15 percent.

Banking Cash Transaction Tax:

This tax is yet another type of tax, which the Government of India has scrapped. This type of taxation was into effect from 2005 to 2009 until Mr. Pranab Mukherjee, the-then Finance Minister, wiped out the tax. Under this tax, every bank transaction, credit or debit, would be levied tax at a rate of 0.1 percent.

Indirect Tax:

What is Indirect Tax?

The taxes levied on goods and services are referred to as indirect taxes. They are different from direct taxes as they are not imposed on an individual who shells out them directly to the Indian government, they are, as an alternative, imposed on the products and an intermediary, the individual selling the product, collects them. The most trivial examples of the indirect taxes are Sales Tax, Taxes levied on imported goods, Value Added Tax (VAT), etc. Such taxes are imposed by summating them with the price of the product or service that likely to push the price of the product up.

A few of these are:

 types of indirect taxes

Types of Indirect Taxes:

The most common forms of indirect taxes are as under:

  1. Sales Tax:

The tax imposed on the sale of any product is called sales tax. This product can be anything produced in India itself or imported and can also cover services provided. The sales tax is levied on the product’s seller who then passes it to the individual who buys the said product with this tax summated to the product’s price. The constraint with this tax is that such a tax is imposed on a particular product that means if the product is re-sold; the seller cannot apply sales tax on it.

Fundamentally, all the states in India follow their individual Sales Tax Act and a percentage native to them is charged. Besides this, other additional charges such as works transaction tax, turnover tax, purchase tax, and the similar taxes are levied in a few states. This is also one reason that sales tax was considered as one of the largest revenue producers for a number of state governments. In addition, the sales tax is imposed under both the State and Central Legislation.

  1. Service Tax:

As sales tax, the service tax is also summated to the price of the product sold in the country. In Budget 2015, the FM announced that the rates of service tax will be elevated to 14 percent from 12.36 percent. It is not charged on goods but on the companies that offer services and once every quarter or every month it is collected on the way services are offered. If the organisation is an individual service provider then the payment of service tax is made only once the bills are paid by the customer. However, for firms, the service tax is to be paid as soon as the invoice is raised, heedless of the payment of the bill by the customer.

You must remember that since the service offered at restaurants is a combo of the premises, the waiter and the food, it is tough to point to be eligible for service tax. To abolish haziness, in this regard, there was a declaration made that the restaurants will charge service tax on 40 percent of the total bill.  

Goods and Service Tax-GST:

The GST, i.e. Goods and Service Tax is the biggest reform in the structure of Indirect Tax in India since the market began unlocking 25 years back. The goods and services tax is a consumption-based tax because it is chargeable where the consumption is taking place. The GST is imposed on the value-added services and goods at every stage of consumption in the supply chain. The GST chargeable on the acquisition of the goods and services can be redeemed against the GST chargeable on the supply of the goods and services, the vendor will have to make payment of the GST on the applicable rate but he can claim it back via the tax credit method.

  1. Value Added Tax:

Value Added Tax (VAT), popularly known as commercial tax is not chargeable on the commodities, which are zero rated for food and necessary drugs or those falling under exports. VAT is imposed at all the steps of the supply chain, from manufacturers to dealers to distributors to the end user.

The VAT was a tax imposed at the prudence of the state government of the country. Not all the states put it into practice when it was announced. The VAT is imposed on several goods that were sold in the state and the state itself decided the amount of tax.

  1. Customs Duty and Octroi:

While you buy anything that requires being imported from abroad, you are applied a charge on it and that is known as the customs duty. It is applied to all the products, which come in via air, sea or land. Although you acquire products bought in different country to India, you will be charged a customs duty. The intention of the customs duty is to make sure the goods that enter the country are taxes and are paid for. Like the customs duty makes sure that the goods for different countries are levied taxes, Octroi is supposed to make sure that the goods traversing the state borders inside India are appropriately taxed. The state government levies this and functions in almost the same way as that of the customs duty.

  1. Excise Duty:

The excise duty is such a tax that is imposed on all the manufactured goods or the produced goods in India. This tax varies from customs duty as it is chargeable only on the things that are produced in India and is also called the Central Value Added Tax or CENVAT. The government collects this tax from the manufacturer of goods, also from the entities, which receive manufactured products and provide work for people to transport the products from manufacturer to them.

The Central Excise Rule framed by the Central Government of India suggests that every individual that manufactures or produces any ‘excisable goods or products’, or who stockpile such products in a depot, will have to make payment of the duty chargeable on these goods. Under this scheme, no excisable products, on which some duty is payable will be permitted to move without making payment of duty from any point6, where they are manufactured or produced.