SIMPLIFYING TAXES: Direct and Indirect Taxes in India

Introduction

Taxes are the primary source of revenue for the government, as the fund collected are utilized for infrastructural development like building roads and bridges ultimately benefiting the public. Not everyone has to pay the taxes; only individuals with an annual income exceeding 3 lakhs are required to pay taxes. There are certain exemptions you can use to reduce your tax liability. The Indian government imposes taxes on nearly all market transactions including both direct and indirect taxes. In this article, we will explore the extent of taxes paid beyond just income tax.

?Types of Taxes

?There are two kinds of taxes:

1. Direct tax: direct taxes are the taxes imposed by state government as well as central government.

2. Indirect tax: indirect taxes are the taxes imposed indirectly by the state government and Central government.

?Direct Taxes By Central Government:

?1. Income tax: Income tax is imposed on one person's income. If the person is earning more than 3 lakh per annum, then he will be asked to pay taxes.

2. Corporation tax: A corporation tax is imposed on a company's profit. For example, if the reliance industry is earning 100 INR, and from that 100 INR, Mukesh Ambani took 20 INR as a salary. Then corporation tax will be imposed on 80 percent profit and income tax will be imposed on Mukesh Ambani's 20 percent.

Here 100 is turnover; tax is imposed on profit only, not on turnover.

3. Minimum alternative tax (MAT): Imposed on corporations having zero profit. If the turnover of the company is 500 rupees and expenditure is 500 rupees, then the government will ask you to pay x% of your turnover whether you are getting profit or not. What are your views on this? What I think is this is not the appropriate way of taxing.

4. Security transaction tax: tax imposed on securities.

5. Commodity transaction tax: tax imposed on the stock market.

6. Google tax—it is also known as an equalization levy; this is imposed on Google AdSense. If a person wants to get their ads published, they have to pay, and that money is taxed. There was a dispute between the Bangalore-based Google company and the government because they were asked to pay taxes, but the company denied. They said this company is based in the US; they are only taking orders in Bangalore, and they are paying taxes in the US, but the court denied their arguments, and the decision was in favor of the government.

7. Capital gains tax: when a person sells any asset and receives profit out of it, then the tax will be imposed on profit incurred only, and the tax imposed is capital gains tax.

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Direct Taxes By State Government

?1. Agriculture income tax: Agriculture tax is exempted in India because of political vote banks, in my opinion, but the state government can impose a tax on agriculture income.

2. Professional tax: The amount fixed is 2500 rupees.

3. Land revenue

4. Stamp/registration duty.

5. Property tax in urban areas.

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Indirect Taxes By Central Government

?1. Custom duty: a tax imposed on goods imported from different countries. Customs duty is not included in GST.

2. Service tax (also included in GST).

3. Excise duty is now included in GST except petrol, diesel, CNG, aviation turbine fuel, and crude oil. Petrol and others are not included in GST, so their prices are different in every state.

4. Central sales tax—tax imposed on interstate trade. Now included in integrated goods and service tax (IGST).

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Indirect Taxes By State Government

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1. Electricity duty

2. Excise duty: state implement excise duty on alcohol and opium.

3. Indirect taxes are included in GST.

? Sales tax

? Purchase tax

? Advertisement tax

? Luxury tax (betting and gambling)

? Entertainment tax Are the taxes imposed when you buy a ticket to a movie?

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Conclusion

In addition to income tax, we pay numerous other taxes to both the central and state governments, whether directly or indirectly. Every transaction we make is subject to some form of taxation. However, despite these payments, the quality of public facilities remains subpar. Allocated funds for infrastructure projects, such as roads and bridges, are often misused by contractors who resort to corruption, using substandard materials. An article by India Today reported that twelve bridges collapsed within a week, resulting in the suspension of 15 engineers. This highlights the need for a robust system to ensure construction quality.