Tax system in India

• Taxes represent the amount of money levied by the government on individuals or companies at predefined rates and periodicity to meet the expenditure which is required for public welfare.
• Tax revenue comes from mainly three sources: Taxes on income and expenditure; taxes on property and capital; and taxes on commodities and services.
• There are mainly two types of Taxes –  direct tax and indirect tax which are governed by two different boards, Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC).

Direct Taxes 
Direct taxes are collected directly from the tax payers and they have to be paid by the persons on whom it is imposed. Thus they are the personal liability of tax payer. Important direct taxes are listed below:

a)Income Tax – It is levied on individuals by the central government and the proceeds are shared between Centre and States. The income tax is imposed on taxable income of all persons including individuals, Hindu Undivided Families (HUFs), companies, firms, association of persons, body of individuals, local authority and any other artificial judicial person.

b)Wealth Tax – This is in addition to the income tax and is levied if your net wealth exceeds Rs 30 Lakh at the rate of 1% on the amount exceeding Rs 30 Lakh.

c)Corporate Tax – Companies operating in India are taxed as per the corporate tax rate on their income.

d)Gift Tax – Gift tax in India is governed under the Gift Tax Act 1958. According to this, any gifts received by any individual or Hindu Undivided Family (HUF) in excess of Rs. 50,000 in a year is taxable.

Indirect Tax

Indirect taxes are the charges that are levied on goods and services. The indirect taxes in India are enforced upon different activities including manufacturing, trading and imports. Some indirect taxes are discussed below:

a) Service Tax

The charges received by the firms for rendering services to the masses come under service tax. India has become a service economy with share of service sector being more than 50 % in GDP thus service tax acts as a good source of revenue for government. Services like leasing, internet/voice, transport, etc are subject to service tax.

b) Custom Duty

Custom duties are indirect taxes which are levied on goods imported to/exported from India. Government keeps on changing these rates so as to promote import/export of specific goods according to the global scenario.

c) Excise Duty
Excise duties are indirect taxes which are levied on goods manufactured in India for domestic consumption. Like custom duty, there are a number of rules which keep on changing as per government discretion.

d) Security Transaction Tax (STT)
STT is levied on transactions (sale/purchase) done through the stock exchanges. STT is applicable on purchase or sale of various financial products like stocks, derivatives, mutual funds etc.

Value added tax or VAT

Value added tax or VAT is an indirect tax, which is imposed on goods and services at each stage of production, starting from raw materials to final product. VAT is levied on the value additions at different stages of production.

VAT was a part of the existing indirect tax structure replaced by the Goods & Services Tax (GST)
 

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