Taxes are the major source of revenue for the government. These taxes may be direct or indirect. There are 56 direct taxes in India. Income tax happens to be the most known form of tax among people. The income tax is the tax paid by individuals or entities as a portion of their income.
The constitution of India empowers the central and state governments to collect taxes as their revenues. The constitution specifies the taxes that are to be collected by both governments. With regards to these laws, the state and central government enact laws.?
The major taxes that are operative in India are Income tax, wealth tax, corporate tax, GST.?
The income tax comes under the ambit of the central government making them the authority on collecting and dispensing these taxes. As per entry 82 of the union list of the seventh schedule of the Indian Constitution empowers the central government to tax non-agricultural income.?
These taxes are levied on individuals, Hindu undivided families, companies, firms, associations, bodies. The current income tax is governed by the Income-Tax Act of 1961, which replaced the British-era Indian Income Tax Act of 1922.?
The law governs the levying, administrative, collecting, and recovery aspects of Income Tax. Under this law, a person resident of India is liable to taxes on his or her income earned from any part of the world while a person not residing in India has to pay taxes for the income earned just in India.?
An important aspect of Indian Income Tax is that agricultural Income is exempted from it. However, as per the provisions of the constitution, a state government can tax an agricultural income.
The income tax structure in India follows a bracket system. Under this system, slabs are placed and individuals or entities pay tax on their income according to these slabs.?
As per the 2020 Financial Budget, the following is the tax slabs with regards to the Income-tax:
| INCOME TAX SLAB | TAX RATE |
|---|---|
| 0- 250000 | Nil |
| 250000-500000 | 5% |
| 500001-750000 | Rs 12500 +10% of total income exceeding 500000 |
| 750001-1000000 | Rs 37500 + 15% of total income exceeding 750000 |
| 1000001-1250000 | 75000 + 20% of total income exceeding 1000000 |
| 1250001-1500000 | 125000 + 25% of total income exceeding 1250000 |
| Above 1500000 | 187500 + 30% of total income exceeding 1500000 |
Previously age was also a factor in certain tax slabs. People aged between 60-80? and those aged above 80 were exempted from income tax if their income was below 3 lakh and 5 lakh respectively. However, that is not the case now.
Indian income tax system also has a system of Tax deduction at source. Incomes from some sources as provided by the provision are taxed due before being payed to the payee.?
One of the purposes of this is to make government available with funds throughout the year. The TDS applies to salaries, Interest on Securities, Lotteries, horse racing wins, insurance commissions, life insurance payments, among others.
Corporate tax is levied on the income of corporate enterprises. These taxes are levied at specific rates as per the provisions of the 1961 Income Tax Act.?
Incorporated Corporations in India, Corporations that acquire revenues from India, foreign enterprises that have permanently established themselves in India among others are liable to pay Corporate tax.?
The corporate tax rates in India today are:
| TYPE OF COMPANY | TAX RATE |
|---|---|
| Domestic Company with turnover up to 250 crore | 25% |
| Domestic Company with a turnover of more than 250 crore? | 30% |
| Foreign Companies | 40% |
In spite of a well-structured Tax system, tax evasion is one of the big problems in India. It is said that only one per cent of India pays Income tax.