- Courses
-
Importance of English in UPSC Civil Services Mains Exam Nouns How to Write Correct English Spoken English Types of Sentences What is a Clause How to Memorize Vocabulary How to Improve your Spelling Words Usage Proverbs
- Demo class
Rameshwar's IAS Knowledge Store
Blinking feature using CSS Current Economy
- Contact
Features of Direct Tax in India
Features of Direct Tax in India
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
The direct tax system in India is quite comprehensive and has been clearly defined through the Income Tax Act of 1961. It includes the following seven groups and includes an individual, a company, a firm, a Hindu undivided family (HUF), a local authority, an association of persons (AOP) or a body of Individuals (BOI) and every artificial judicial person who may not fall into any of the other groups. The government collects the tax during a complete financial year starting from April till March of the preceding year. The government also provides plenty of advance notices to improve and encourage these taxes.
The Direct tax types which are prevalent in India include income tax, wealth tax, estate tax, corporate tax and capital gains tax. The three methods that are frequently used to collect these taxes include advance and self-assessment tax, tax deducted at source (TDS) and tax collected at source (TCS). There are many benefits of direct taxes and they include facilitating reliability and certainty due to a fixed rate of tax, encouraging equity and equality, enhancement of government resilience and saving time and money as no money is required to be spent for the collection of these taxes.
The main features of direct tax include non-shifting, certainty, productiveness, elasticity, anti-inflationary and educative. It is non-shifting because the onus of this type of tax stays on an entity and cannot be shifted. It has certainty due to its payment time and the amount involved so that a taxpayer knows how much to pay and when. It is productive because the tax amount increases with an increase in tax payer’s income. It is elastic as governments can change the tax rate anytime. It is educative as it educates taxpayers about tax liability. And finally, it is a powerful instrument for controlling inflation.
A good example of direct tax in India is the corporate tax. If, for example, a manufacturing corporation reports Rs. 10 Lakhs in revenue, Rs. 5 Lakhs as the cost of goods sold (COGS) and an operating cost of Rs. 1 Lakh then the earnings before taxes, depreciation and interest work out to Rs. 4 Lakhs. Thus, with a corporate tax rate of 25%, the direct tax payable will be Rs. 1 Lakh (0.25 X 4, 00, 000). However, the corporate tax rate varies with annual revenue figures.