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Types and Benefits of Direct Tax
Types and Benefits of Direct Tax
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A direct tax is one in which both the incidence and the impact of the tax fall on the same person or business. Therefore, the direct tax payment cannot be transferred to a different individual or organization. This kind of tax has to be paid by the organization or individual that imposes it. Income tax, corporation tax, property tax, and gift tax are the most common types of direct taxes in India. In addition, in India, direct taxes are assessed based on an individual or business's ability to pay. Therefore, this kind of tax typically has a progressive tax system, which means that the tax payer's tax rate is usually higher the higher their ability to pay. The income tax slab rates, in which individuals with a higher income must pay taxes at a higher rate than those with a lower income, are perhaps the instance of this that is most commonly known. The following are direct taxes that are levied by the various tax authorities within the Indian government:
What exactly is an indirect tax?
It is a tax that the Indian government charges the end user on goods or services. This tax is typically included in the market price of the goods or services. In India, there are no clear laws that define indirect taxes. On the other hand, our government issues announcements and circulars to levy indirect taxes on both tangible and intangible goods.
1. Income Tax: Individual tax payers in India are required to pay income tax based on their age and income. The income tax that must be paid is determined by the income tax slab rates that are announced by the Indian government. Each year, the taxpayer is required to file income tax returns. If an individual fails to pay their income tax, they may be subject to severe penalties and even incarceration.
2. Wealth Tax: This kind of tax must be paid annually and is determined by the property's ownership as well as its market value. Wealth tax must be paid by a person who owns property, even if the property does not bring in any money. Since April 1, 2016, India has no wealth tax at this time.
3. Corporate Tax: In India, only shareholders and domestic businesses are required to pay corporate tax on their income. Corporate tax will also be due from foreign businesses that earn in India. Taxable income in India includes profits from asset sales, technical service fees, dividends, interest, and royalty payments.
4. STT or Securities Transaction Tax: When an individual or business transacts in securities like shares and mutual funds, securities transaction tax must be paid.
5. DDT or, Dividend Distribution Tax : is imposed on a domestic company if it decides to distribute or declare a dividend to shareholders. According to an announcement made by the Finance Minister in Budget 2020, DDT was no longer used.
6. MAT or, Minimum Alternative Tax: MAT is only applicable to zero-tax organizations in India that have accounts prepared in accordance with the Companies Act under the current direct tax rules.
7. Tax on Capital Gains: This is a type of direct tax that is levied on profits from investments or the sale of assets. Capital assets include investments in shares, mutual funds, art, businesses, property, and bonds. Capital gains tax can be paid on short-term or long-term gains, depending on how long the asset was held. The appropriate holding period for long-term capital gains can differ depending on the kind of capital asset.
Benefits of Direct Taxation - The primary benefits of direct taxation in India include the following:
1. Economic and social harmony: A tax bracket that is well-balanced and based on an individual's age and earnings has been introduced by the Indian government. The economic situation of the nation is used as the basis for these tax brackets. In order to even out the income disparities, exemptions are also implemented.
2. Greater productivity & efficiency: The return on direct taxes also increases as the number of employed individuals rises. As a result, direct taxes are regarded as extremely productive.
3. Inflation control: When inflation rises, taxes frequently rise in tandem. As a result of this increase in taxes, the demand for goods and services decreases, this in turn lowers inflation.
4. Certainty: The direct tax system provides taxpayers and the government with a sense of security. Both the government and the taxpayer are aware of the amount of tax that must be paid and collected in advance, and it is simple to calculate.
5. Progressive Regime: The government imposes a higher tax on individuals or businesses that can afford it. This ensures that lower-income individuals and businesses are not disproportionately affected by taxes.