In this article we are going to discuss various direct tax that are levied in an economy.
A) Income Tax:
Definition: Income tax is tax levied on income received by individuals and corporations. It is a direct tax, as it is levied on personal income (for individuals) or profit (in case of corporation) by directly imposing on subject (Taxpayer).
In India Union or Central government has been authorized to levy income tax by constitution of India as it is part of union list. Under this authorization, Indian Parliament has passed many laws to broadly define it’s power & reach, with finance act (Budget) every year specifying details on tax regime.
Indian IT Act broadly categorizes 5 type of income for which Income Tax returns are filed:
1) Salaries
2) Profit (The residual money left with entrepreneur)
3) Capital Gains
4) Rental income
5) Other remaining source
B) Capital Gains Tax: Whenever an asset is purchased for lower value and sold for more, a capital gain or profit is made. This profit is to be taxed according to law and tax levied is known as capital gains tax.
Profit on what type of assets?
Capital assets such as shares, bonds or real estate excluding agricultural land and certain bonds.
Jewellery, paintings etc are covered under it.
What remains the proportion of tax?
Normally if you sell the capital asset after holding it for 36 months (some shares considered for 12 months) it is taxed less compared to assets you may sell it before.
Here is simplification:
Short term capital gains (STCG) = Capital asset held for less than 36 months (Taxed higher to remove speculations)
Long term capital gains (LTCG) = Capital asset held for more than 36 months (Tax rates lower comparatively)
If there is capital loss (i.e asset sold less than the purchasing value) on sale of asset, Tax authority allows to set-off this loss against any other capital gain in that particular year.
C) Corporate Tax:
Definition: Corporate tax is paid by owner of business (annually) on the profit or net income of the company. It is also known as company tax. After taking out all expenses of business, Residual payment left with the owner is charged corporate tax.
In India, under companies act 1956 both public and private companies are liable to pay this tax.
D) Securities Transaction Tax (STT):
Tax charged on transaction whenever someone sell or purchase shares, bonds, debentures (barring commodities) from the stock broker. It’s aim is to discourage the extensive buying and purchasing which create speculations in market. In addition the tax money is also used in expenditures by Govt.
E) Commodities Transaction Tax (CTT):
Tax charged on transactions constituting selling and purchasing commodities derivatives. It’s purpose is same as of STT except being charged on commodities derivatives rather than companies shares.
F) Wealth Tax:
Tax paid by individuals and companies on the value of total assets they hold. It is a tax on the stock of wealth of an assessee (whereas income tax is on flow of assests). A particular asset which fulfill all conditions to be regarded as an asset under Wealth Tax act, is considered as wealth of the assessee, hence liable to be taxed.
Cooperative society, political party does not fit under definition of Wealth tax assessee, while money in mutual fund is also exempted from its sphere. In India Wealth Tax was abolished in 2015, with govt asking assessee to pay more surcharge if income exceeds 1 crore.
