Indian Taxes are divided in Direct Indirect Tax.
Taxes are source of revenue for government by which they do all types of development work.
The concept is if anybody earns an income, he should share a portion of the same with the government.
The way of levy of taxes, decides whether the tax is direct or indirect.
If a tax is levied directly on a person income then they are called direct taxes
Whereas the indirect taxes are levied on a product or a service the incidence of which is borne by the consumers who ultimately consume the product or the service.
For example I earn Rs. 10 Lac as salary. Suppose I need to pay Rs. 7000 as income tax on this salary income. Since the income tax of Rs. 7000 is directly levied on my salary income hence income tax is direct taxes.
Suppose in second case, I paid Rs. 750 (Rs. 700 basic amount + Rs. 50 as service tax) as my mobile bill to Airtel. Airtel will retain Rs. 700 and pay the Service tax Rs. 50 to the government.
This service tax is indirectly paid by me but levied on Telephone service.
What is the Difference between Direct Indirect Tax
| Direct Taxes | Indirect Taxes | |
|---|---|---|
| (i) | They are leveid on persons. | They are levied on goods and services. |
| (ii) | Amount of tax is determined directly on the basis of taxable income/wealth of assessee | The amoutn of tax is detemined indirecly |
| (iii) | Tax incidence is borne by the same person who pays it. | Tax incidence passes on to the ulitmate conusmers |
| (iv) | Higher collection costs as tax collection is difficult. | Less collection costs as tax collection is easier |
What are the Types of Direct Taxes in India
Income Tax
This tax is governed by Income Tax Act, 1961.
It is levied and collected by central government.
Wealth Tax
This tax is governed by Wealth Tax Act, 1957
It is tax levied on wealth of a person.
From year 2015-16 this tax is abolished.
Gift Tax
This tax is governed by Gift Tax Act, 1958
This tax is levied on gifts received.
Property Tax
This tax is levied on property owned.
It is levied and collected by state government.
The rates and rules may differ for each state.
Commodities Transaction Tax
It is governed by finance act.
This tax is levied on sale of commodity derivates
Security Transaction Tax
It is governed by Finance Act
This tax is levied on sale of securities (Shares/debentures)
What are the Types of Indirect Taxes in India
Here is the list of main indirect taxes in India with details.
| Indirect Taxes | Excise Duty | Service Tax | Sales Tax/VAT | Customs Duty |
|---|---|---|---|---|
| Levied By | Central Government | Central Government | State Government | Central Government |
| Relevant Entry in Constitution | Entry No. 84, List I, Schedule VII of the constitution of India | Residual Entry No 97. List I. Schedule VII of Constitution of India | Entry No. 54 of List II (State VAT) and 92A of List I (central sales Tax), schedule VII of COI | Entry No. 83. List I, schedule VII of the Contittuion of India |
| Taxable Event | Manufacture | Provison of Service | Sales of Goods | Import and Export of Goods |
| Rate of Taxation | Median Rate- 12.50% | Single Rate 14% plus Swatch Bharat Tax | Rates 0 %, 4%, 12.5% & 20% | Median Rate 24% plus cess |
The other indirect taxes are as follows:
Luxury tax
This tax is levied by state government.
It is levied on luxurious (high value ) goods/services like five star hotels etc.