Direct Tax

Let us take a look at the different types of direct Taxes in India

Income Tax:

This tax is levied depending upon the age, earnings of an individual. The tax is levied on the basis of slabs defined by the government under the Income Tax Act,1961. The Government imposes penalties if the tax is not paid by individuals. The taxpayers file ITR with the government yearly. The Government also provides refunds to taxpayers.

Capital Gains Tax: 

It is the tax that is paid on income from the sale of assets or investments. The capital gains are either short term capital gains or long term capital gains. If any asset or investment is sold before thirty-six months from the purchase of an asset, it is called short term capital gain. If an asset is sold after thirty-six months the gain is called long term capital gain.

Wealth Tax: 

It is the tax paid on the wealth of an individual or a HUF and a company in the form of a surcharge. The major factor for consideration for this tax is the residential status. The residents of the country have to pay this tax on their global assets and the NRI’s pay the tax on their assets in India.

Also Read: What types of incomes are taxable in India?

Corporate Tax:

Domestic companies have to pay Corporate Tax. Foreign companies who make assets in India also have to pay Corporate Taxes.

The taxes given below are included in Corporate Tax.

Securities Transaction Tax

This tax is paid on any income that is earned on any transaction done on the stock exchange.

Dividend Distribution Tax

In the case of dividend payments by companies, the dividend distribution tax is levied on such transactions. For the dividends of foreign companies, dividend distribution tax is not levied.

Fringe Benefits Tax

For any fringe benefits provided by companies, tax is levied.

Minimum Alternate Tax

For companies with zero tax, the minimum alternate tax is levied.

Also Read: How Is Corporate Tax Calculated?

Property Tax:

This is a local tax levied by the State Government on the owners of immovable property such as buildings and houses for the maintenance of the houses in specific areas. This is imposed by the Municipal Corporations. This is generally levied at the rate which is area-based.

Corporation Tax: 

Corporations or Organizations have to pay direct tax to the Government if they are incorporated in India or have their operations in India. This is a tax that companies pay on the income they earn. This is also called a surcharge.

Income Tax As A Direct Tax

This is one of the most important and prominent taxes in India that an individual has to pay. The annual financial Budget will give an estimate as to how much tax is to be paid in the respective financial year.

Let us take a look at the Income Tax Rates

Advantages of Direct Tax

• Direct taxes are directly proportional to the wealth of the nation. The Government can have a precise estimate for the revenue generated by the direct taxes. Therefore these taxes are productive and give a clear picture of the financial situation.
• The Income Tax which is the most prominent form of Direct Tax in the country is levied according to the income of an individual. Hence the tax slabs are varying for each type of individual. This shows that the tax system is progressive in nature.
• If the wealth of the nation increases, the direct tax paid by the individuals also increases. This shows that the direct tax system is productive in nature.
• The direct tax system can be used to control the demand and the prices of products in the markets. This acts as an anti-inflationary property for the nation.

Disadvantages of Direct Tax

• Many of the taxpayers feel the pinch of paying tax in case of direct taxes as the tax has to be paid on the income earned by the payer every year.
• A lot of taxpayers in the country evade tax because of the voluntary payment of taxes in case of direct taxes. The income statement is furnished by individuals for the payment of taxes.
• The income gap between the rich and the poor in our country is very large and thus the poor may be untouched by the purview of direct taxation.
• The direct taxes are uneconomical as their scope is very narrow. Also, the checking and assessing of every individual is not possible by the Government.

Payment of Income Tax Online

• Step 1: Log in to for e-payment.
• Step 2: Select the appropriate Challan.
• Step 3: Enter PAN/TAN and relevant details.
• Step 4: On submission of the data the confirmation is received.
• Step 5: The taxpayer is directed to the net banking website.
• Step 6: On successful payment, a challan counterfoil is displayed.

Due Dates for Paying Tax

Are all incomes Taxable?

There are two types of income for any individual that are revenue receipts and capital receipts. All revenue receipts are taxable unless otherwise they are exempted by the Income Tax Act,1961. All capital receipts are exempted unless otherwise taxable as per the Income Tax Act,1961.

Advance Tax and Payment

It is the advance tax to be paid on the estimated income of the year. It is not a separate tax but a part of the Income Tax which is paid yearly. This tax is paid on the estimated income but the actual tax is paid after the income is earned in the year.

Income Tax Refund

If your Tax Deducted at Source (TDS) exceeds the total tax payable including the interest income, salary etc. you can claim a refund. If your advance tax paid is greater than the actual tax liability then you can claim an income tax refund. In case of any miscalculation of the tax liability on your part while filing the taxes, then a refund can be claimed.

Direct Tax Code

The Government wants to establish a more equitable and effective system of Direct Taxes and thus they plan to introduce the Direct Tax Code. This aims to reduce the unjust burden on the taxpayers and make the system more transparent and efficient. This will also improve the voluntary filing of taxes and thus increase the GDP ratio of the country.

FAQS of Direct Taxes