TAX

What is Tax?

Tax is a mandatory fee imposed by the government on individuals to collect revenue.

What is the Best Way to do Business?

The Best way to do business required the three basic things :

1. A comprehensive analysis of your product
2. A deep understanding of your customer
3. A passionate determination to succeed.

Here are some fundamental requirements for starting a business or becoming a successful businessman.

• Adequate knowledge and skills in a specific sector
• Maintain a keen interest in and enthusiasm for your project
• Sufficient financial resources are required
• Determination to overcome all obstacles till the business succeeds
• Appropriate licencing from government agencies to establish legitimacy

hen matched with an entrepreneurial mindset, the necessities mentioned above can assist you in starting your own business.

Significance of Tax

India has a well-structured tax system with a three-tier federal structure. First, the Government collects money from people in the form of tax. Then, it uses it for implementing projects that benefit the country. 

The constitution of India allocates the Government the power to collect taxes, and the tax structure includes the central Government, state governments, and local municipal bodies.

Types of Taxes in India

Taxes in India are Central and State Govt taxes with two types of taxes:

1. Direct tax
2. Indirect tax

Direct Tax

Direct taxes are taxes on your earnings in India. 

Applicability of the Tax

An earning party, whether an individual, HUF or a company, is responsible for depositing the direct tax liability. 

When to Pay Direct Tax?

This tax is payable during each assessment year (1st April to 31st March). You cannot transfer these taxes to others. 

Threshold Limit

If your annual income exceeds the minimum exemption limit, you must make income tax payments. However, you can get tax benefits under various sections of the Act. Before discussing tax benefits, you need to understand the income tax slab.

Sub-categories of Direct Taxes

Direct taxes add up to 50% of the Government’s revenue in India. Here are the direct taxes applicable in India:

Income Tax

Income tax is the tax imposed on the annual income or the profits directly paid to the Government. The features of income tax apply to any income of an Individual or HUF except capital gains and profits from business and profession.

Everyone who earns any income is liable to pay income tax. Apart from individuals, legal entities are also responsible for paying taxes. 

Calculation:

You can calculate income tax according to the applicable slab rates for the Assessment Year.

Limit:

1. Rs.2.5 lakh per annum for individuals below 60 years
2. Rs.3 lakh for individuals of age between 60 and 80
3. Rs.5 lakh for individuals above 80 

Capital Gains Tax

Capital gains tax is a tax on selling a property or money you receive through any investment, either short-term or long-term capital gains.

Securities Transaction Tax

STT is a tax on the stock market and securities trading, the share’s price and securities traded on the ISE (Indian Stock Exchange).

Prerequisite Tax

These are taxes on the benefits and perks a company provides its employees. The purpose of the benefits and perks is to be defined.

Corporate tax

The income tax paid by any company is known as corporate tax, a tax on the different revenue slabs. The sub-categories of these taxes are as follows:

1. Dividend distribution tax ( DDT): This tax is on the company’s dividends to its investors. It applies to the gross income an investor receives from the investment.
2. Fringe benefits tax (FBT): a tax imposed on the fringe benefits that an employee receives from the company, including accommodation, transportation, leave travel allowance, entertainment, retirement fund contribution by the employee, employee welfare, Employee Stock Ownership Plan (ESOP), etc.
3. Minimum Alternative Tax (MAT): Companies pay the IT Department through MAT, and Section 115JA of the IT Act governs MAT. Companies exempt from MAT are those in the power and infrastructure sectors.

Indirect Tax

Indirect taxes are taxes on expenses collected by corporations and service or product-providing businesses. Taxes on services and products are called indirect taxes. It is a tax added to the price of the products and services that increases the cost of the product or service. 

Applicability of Indirect Tax

The seller of the service or product collects indirect taxes. However, the Government currently imposes only one indirect tax, GST or the Goods and Services Tax.

Other Indirect Taxes

Other taxes are small revenue generators. They are of sub-categories:

• Property tax, also called Real Estate Tax or Municipal Tax, is the tax that residential and commercial property owners pay to maintain essential civil services. Property tax is by the municipal bodies based in each city.
• Professional tax, This employment tax is on those practising a profession or earning a salaried income, such as lawyers, chartered accountants, doctors, etc. This tax differs from state to state—only some states levy professional tax.
• Entertainment tax is a tax on television series, movies, and exhibitions tax. The tax is on the gross collections from the earnings and is also called the amusement tax.
• Registration fees, stamp duty and transfer tax supplement property tax at the time of a property purchase.
• The Education cess funds the educational programs launched and maintained by the Government of India.
• Entry tax is a tax on the products or goods that enter a state through e-commerce establishments. It is applicable in Delhi, Assam, Gujarat, and Madhya Pradesh.
• Road and toll taxes are for maintaining roads and toll infrastructure.

What is Goods and Services Tax?

Goods and Services Tax or GST has consolidated India’s complex web of indirect taxes.

Taxation in India has three layers of levies – Centre, State and Local Authority or Municipalities.

In the pre-GST era, these were the indirect taxes on the goods and services in India:

1. Service Tax
2. Excise Duty
3. Entertainment Tax
4. Value Added Tax (VAT, State)
5. Octroi
6. Luxury Tax (State)
7. Purchase Tax
8. Entry Tax (State)
9. Central Sales Tax (collected by State)

These taxes posed many disadvantages and conflicts for suppliers, manufacturers, and government bodies.

The Present State of the GST

GST has simplified indirect taxation for goods and services in India. You only need to consider the following taxes now Instead of five or six different taxes:

• Central Goods & Services Tax (CGST)
• State Goods & Services Tax (SGST)
• Integrated Goods & Services Tax (IGST)

CGST and SGST apply for sale within the state. IGST applies to the goods you sell between states.

Disadvantages of Indirect Taxes Before GST

GST removes the complexity and hurdles towards participation in national business markets. GST made goods and services cheaper for individuals and ended consumers while making taxation transparent and easy for sellers.

Advantages of Taxes

Anyone earning a taxable salary must file their income tax returns, even if their tax liability is zero after deducting. Filing them and paying your taxes can benefit you in the following ways:

• Approval of loans: When applying for a loan, especially home and vehicle loans, banks might request a copy of your income tax returns from the last 2 to 3 years. Having ITR can even help you get a higher loan amount or get your loan application reconsidered if the officials reject it. Banks use ITR to analyse your income and deduce if you can repay the loan. ITR provide a clear picture of payment and taxes.
• Visa applications: Many foreign consulates require you to furnish your income tax returns from the last years during the visa interview. It is prudent to carry your ITR receipts, even when you travel abroad for leisure or business. They will come in handy in the case of any emergency when you have to seek the help of a consulate.
• Individuals of self-employment: Freelancers, consultants, entrepreneurs, and firms’ partners are not eligible for Form 16. You must furnish your ITR receipts as proof of income if your annual income exceeds the basic exemption limit. It is proof of taxes paid and is helpful during any financial or business transaction.
• Tenders for the Government: When applying for government tenders, you must furnish your ITR receipts. Although each government department has its rules, you should keep them handy to ensure you have enough money to meet your obligations.
• Carrying forward of losses: You can carry forward short-term or long-term capital losses to adjust against the capital gains made in the subsequent years. For example, the long-term capital loss of one year can be carried forward for up to 8 consecutive years that immediately succeed the year in which the loss had occurred. However, you can only adjust a long-term capital loss against a short-term capital gain of that year. However, you can adjust a short-term capital gain against short-term and long-term gains. However, you can avail of this only if you file your income tax returns.
• Claiming of tax refunds: You can claim any refunds from the IT Department only if you file your income tax returns. You could claim refunds from different savings instruments if you file your ITRs, even when your income is below the tax exemption bracket. 
• Coverage of life insurance:  You can avail of “Life cover or a Term Policy” with a sum insured from Rs.50 lakh to Rs.1 crore. You can do so by furnishing income tax returns that help verify annual income. 

Claiming of compensations: You must provide ITR receipts when claiming compensation to establish your income when in a motor vehicle accident resulting in disability or accidental death.