Direct Tax

A type of tax where the impact and with the incidence fall into a similar category are often defined as a direct Tax. The tax is paid directly by the organisation or a personal to the entity that has imposed the payment. The tax must be paid directly to the govt and can’t be paid to anyone else.

A type of tax where the impact and with the incidence fall into a similar category are often defined as a direct Tax. The tax is paid directly by the organisation or a personal to the entity that has imposed the payment. The tax must be paid directly to the govt and can’t be paid to anyone else.

Learn more on Income Tax, Income Tax Calculator, Income Tax Refund, Income Tax Return and How to file ITR in our articles

What are the different types of Direct Taxes?

The various types of direct taxes that are imposed in India are mentioned below:

  • Income Tax: Looking upon an individual’s age and earnings, tax must be paid. Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid. The taxpayer must file Income Tax Returns (ITR) on a yearly basis. Individuals may receive a refund or may need to pay a tax counting on their ITR. Huge penalties are levied in case individuals do not file their ITR.
  • Wealth Tax: The tax must be paid on a yearly basis and depends on the ownership of properties and with the market price of the property. In case a person owns a property, wealth tax must be paid and it does not depend upon whether the property generates an income or not.

Corporate taxpayers, Hindu Undivided Families (HUFs), and individuals must pay wealth tax counting on their residential status. Payment of wealth tax is exempt for assets like house property, stock holdings, gold deposit bonds commercial property that are rented for over 300 days, and if the house property is owned for business and professional use.

  • Estate Tax: It’s also called as death tax and is paid supported the worth of the estate or the cash that a private has left after his/her death.
  • Corporate Tax: Domestic companies, except for shareholders, will need to pay corporate tax. Foreign corporations who make an income in India also they need to pay corporate tax. Income earned via selling assets, technical service fees, dividends, royalties, or interest that’s based in India are taxable. The below-mentioned taxes also are included under Corporate Tax:
    • Securities Transaction Tax (STT): The tax must be purchased any income that’s earned via security transactions that are taxable.
    • Dividend Distribution Tax (DDT): Just in case any domestic companies declare, distribute, or are paid any amounts as dividends by shareholders, DDT is levied on them. However, DDT is not levied on foreign companies.
    • Fringe Benefits Tax: Companies that provide fringe benefits for drivers, maids, etc., Fringe Benefits Tax is levied on them.
    • Minimum Alternate Tax (MAT): For zero tax companies that have accounts prepared consistent with the businesses Act, MAT is levied on them.
  • Capital Gains Tax: it’s a sort of tax that’s paid thanks to the income that’s earned from the sale of assets or investments. Investments in farms, bonds, shares, businesses, art, and residential come under capital assets. Based on its holding period, tax are often classified into long-term and short-term. Any assets, aside from securities, that are sold within 36 months from the time they were acquired come under short-term gains. Long-term assets are levied if any income is generated from the sale of properties that are held for a duration of quite 36 months.

Tax Rate for the Various Sorts of Direct Taxes

  • Income Tax: Counting on the individual’s age and salary, he/she will fall into a specific tax slab. The three different tax slabs are mentioned below:

For resident individuals and Hindu Undivided Families (HUFs) who are below the age of 60 years:

Tax slab Income tax
Up to Rs.2.5 lakh Nil
From Rs.2,50,002 to Rs.5,00,000 6% of the total income that is more than Rs.2.5 lakh + 5% cess
From Rs.5,00,002 to Rs.10,00,001 20% of the total income that is more than Rs.5 lakh + Rs.12,500 + 5% cess
Income of above Rs.10 lakh 30% of the total income that is more than Rs.10 lakh + Rs.1,12,600 + 5% cess

For senior citizens who are above the age of 60 years and below the age of 80 years:

Tax slab Income tax
Up to Rs.3 lakh Nil
From Rs.3,00,002 to Rs.5,00,001 5% of the total income that is more than Rs.3 lakh + 5% cess
From Rs.5,00,002 to Rs.10,00,001 20% of the total income that is more than Rs.5 lakh + Rs.10,500 + 5% cess
Income of above Rs.10 lakh 30% of the total income that is more than Rs.10 lakh + Rs.1,10,100 + 5% cess

For resident Indians who are above the age of 80 years (Super Senior Citizen):

Tax slab Income tax
Up to Rs.5 lakh Nil
From Rs.5,00,002 to Rs.10,00,001 20% of the total income that is more than Rs.5 lakh + 5% cess
Above Rs.10 lakh 30% of the total income that is more than Rs.10 lakh + Rs.1,00,001 + 5% cess
  • Corporate Tax: The tax rates for international and domestic companies are mentioned below:

Domestic companies:

    • In case the turnover of the company is less than Rs.250 crore, the corporate tax that is levied is 25%. However, if the turnover of the company is more Rs.250 crore, the corporate tax that is levied is 30%.
    • A surcharge of 10% of the taxable income is levied just in case the taxable income is between Rs.1 crore and Rs.10 crore.
    • In case the taxable income of the company is more than Rs.10 crore, the surcharge that is levied is 12%.
    • 4% of the company tax is levied as cess.

International companies:

    • In case companies are earning under Rs.1 crore, a company tax of 41.2% is levied. The corporate tax includes 40% basic tax and three education cess.
    • In case companies are earning quite Rs.1 crore, a company tax of 42.024% is levied. The corporate tax includes 40% basic tax, 2% surcharge, and three education cess.
    • In case companies earn quite Rs.10 crore, a surcharge of fifty is levied except for the essential tax.
  • Capital Gains Tax
    • According to the traditional tax slabs, short-term capital gains is levied.
    • In case Capital Gains Tax is computed considering indexation benefit, the long-term capital gains that are levied are taxed as 25%.
    • In case Capital Gains Tax is computed without considering indexation benefit, the long-term capital gains that are levied are taxed at 15%
  • Wealth Tax
    • Depending on the net worth wealth, Wealth Tax is levied. Net wealth are often calculated by the sum of all taxable assets minus the entire debt that’s owed.
    • The formula for net wealth is, Net Wealth = (Value of all assets) – (Value of all debt).
    • The value of net wealth is taken into account on March 31 of each year that immediately precedes the assessment year.
    • However, with effect from 1 April 2016, for wealth that was being held as of 31 March 2017, Wealth Tax has been dissolved.

Direct Tax Code

The tax Code or DTC was mainly drafted to exchange the tax Act of 1961. The main aim of DTC is to determine a more equitable, effective, and efficient tax system. DTC was also drafted to amend and stabilise all laws that are associated with direct taxes in order that the tax-GDP ratio increases and voluntary compliance becomes easy.

Explanation of the Direct Tax Codes

The key features of the tax Code are explained below:

  • All direct taxes have one code: By bringing all direct taxes under one code, a single, unified taxpayer system are often brought into effect. All compliance features also can be unified under one code.
  • Stability: Currently, supported the Finance Act of the relevant year, taxes are formed. However, under the tax Code, the tax rates are being made between the primary and Fourth schedule of the DTC. Any changes to the schedule can be made by passing an Amendment Bill before the Parliament.
  • Regulatory Functions are eliminated: Other regulatory authorities must handle all regulatory functions.
  • Political contributions: 5% of the gross total income that can be deducted will be made towards political contributions.
  • Flexibility: A law has been created in order that changes and requirement to grow the economy are often accommodated without having to form amendments on a continuing basis.
  • Constant litigation problems have been eliminated: Special care has been put forth so that the code is not misused or misinterpreted in order to avoid contradiction and ambiguity.
  • Fringe benefits tax: The tax is levied on employees instead of employers.

What are the Advantages of Direct Taxes in India?

The main advantages of Direct & Indirect Taxes in India are mentioned below:

  • Economic and Social balance: The govt of India has launched well-balanced tax slabs counting on an individual’s earnings and age. The tax slabs also are determined supported the economic situation of the country. Exemptions are also put in place so that all income inequalities are balanced out.
  • Productivity: As there’s a growth within the number of individuals who work and community, the returns from direct taxes also increases. Therefore, direct taxes are examined to be very productive.
  • Inflation is curbed: Tax is increased by the government during inflation. The increase in taxes reduces the need for goods and services, which results in inflation to compress.
  • Certainty: Due to the presence of direct taxes, there is a sense of certainty from the government and the taxpayer. The amount that must be paid and the amount that must be collected is known by the taxpayer and the government, respectively.
  • Distribution of wealth is equal: Higher taxes are charged by the government to the individuals or organisations that can afford them. This extra money is used to help the poor and lower societies in India.

Even though there are a few disadvantages, direct taxes play a very important role in India’s economy. If these taxes are brought into effect appropriately, they could play a huge role in sustaining price levels and to prevent inflation.

Frequently Asked Questions:

  1. How can I save on my taxes? It is possible to have a portion of your income viewed as or deemed non-taxable – by investing it in certain funds, investments and policies which are income tax deductible.
  2. What are some of the investments that I can make to save on Income Tax? Investments under Section 80C, 80CCC and 80D are directly exempt from taxation – like some tax saving fixed deposits, investments in National Savings Certificates (NSCs), insurance policies, EPF and PPF schemes, etc.
  3. What is TDS? TDS is Tax Deducted at Source. Before you receive your pay, a particular amount is deducted as tax through the tactic of TDS.
  4. What is an assessment year?An assessment year is a 12 month period that starts on the 1st of April, up to the 31st of March the next year.
  5. Are all receipts and income considered as taxable income? No, there are two types of receipts – 1. Revenue receipts and 2. Capital receipts. All revenue receipts are taxable unless specifically exempted and all capital receipts are exempted unless specifically taxed.
  6. What are the rules relating to taxation of gifts? Gifts exceeding over Rs.60,000 are taxable unless received from:
    • A relative.
    • On occasion of marriage.
    • Under will or by inheritance or in contemplation of the death of the payer.

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