Direct Tax

Direct Tax

Tags:      Gig Economy     Economy     WTO     WTO Public Stockholding     MSP     Economic Growth     Masala Bond     Environmental Performance Index     Forecast of Economic Growth     Functions of the Finance Commission

A Direct Tax is a kind of tax where the incidence and the impact are in the same category. An organization or an individual pays the tax to the entity that imposed it directly. The tax cannot be paid to anyone else and must be paid directly to the government. The following is a list of the various types of direct taxes that are levied in India:

1. Income Tax: Income tax must be paid depending on an individual's age and earnings. The Income Tax that must be paid is based on a number of tax brackets that are set by the Indian government. Each year, the taxpayer is required to submit Income Tax Returns (ITR).Depending on their ITR, individuals may be required to pay a tax or receive a refund. Individuals who fail to file an ITR face severe penalties.

2. Wealth Tax: The tax is due annually and is based on the market value of the property as well as who owns the property. Wealth tax must be paid by individuals who own real estate, regardless of whether the property generates income. Depending on their residential status, corporate taxpayers, Hindu Undivided Families (HUFs), and individuals must pay wealth tax. Gold deposit bonds, stock holdings, residential properties, commercial properties rented for more than 300 days, and residential properties owned for business and professional use are exempt from wealth tax.

3. Estate Tax: It is also known as inheritance tax and is paid based on the value of an individual's estate or the money left over after death.

4. Corporate Tax: Except for shareholders, domestic businesses will be required to pay corporate tax. Corporate tax must also be paid by foreign companies that earn money in India. India-based income from selling assets, technical service fees, dividends, royalties, or interest is taxed.

5. Tax on securities transactions (STT): Any taxable income derived from security transactions must be paid for the tax.

6. Tax on dividend distributions or, DDT: DDT is levied against domestic businesses that declare, distribute, or receive dividend payments from shareholders. DDT, on the other hand, is not taxed on foreign businesses.

7. Tax on fringe benefits: Companies that offer fringe benefits to drivers, maids, and others, they are subject to the Fringe Benefits Tax.

8. Alternate Minimum Tax (MAT): MAT is assessed to zero-tax businesses with accounts prepared in accordance with the Companies Act.

9. Tax on Capital Gains: It is a type of direct tax that is levied on profits from investments or the sale of assets. Capital assets include investments in homes, farms, bonds, stocks, businesses, art, and other assets. Taxes can be divided into long-term and short-term categories according to their holding period. Short-term gains apply to all assets, with the exception of securities, that are sold within 36 months of their acquisition. If a property has been held for more than 36 months and a profit is made from the sale, it is considered a long-term asset.

Advantages of Direct Taxation: The following are the main advantages of Direct Taxation in India:

1. Social and economic harmony: The income and age of an individual are taken into account when determining a person's tax bracket by the Indian government. The country's economic situation also plays a role in determining the tax brackets. Additionally, exemptions are enacted to even out all income disparities.

2. Productivity: The returns from direct taxes also rise as the number of people who work and live in the community grows. As a result, direct taxes are regarded as extremely productive.

3. Reduced inflation: Inflation causes the government to raise taxes. Because goods and services are less needed, taxes go up, which makes inflation go down.

4. Certainty: Both the taxpayer and the government feel confident because direct taxes are in place. The taxpayer and the government are aware, respectively, of the amounts that must be paid and collected.

5. Equal wealth distribution is observed: The government imposes higher taxes on those who can afford them on individuals or organizations. India's lower classes and the poor benefit from this extra cash.

To sum up, direct taxes are a very important part of India's economy, despite a few drawbacks. These taxes could significantly contribute to price stability and inflation prevention if implemented appropriately.