Direct Tax in India

The Indian government imposes two different sorts of taxes on its citizens: direct tax and indirect tax. Indirect taxes may be transmitted to another party; the Goods and Services Tax is a well-known example (GST). The GST is a direct tax that is assessed on businesses that produce goods or render services. It is then passed along to consumers as an indirect tax by being added to the ultimate cost of the goods or services.

However, direct taxes, such as income tax, which each individual is required to pay independently and directly to the Indian government, cannot be transferred to another person. Direct and indirect taxes are important factors that have a significant impact on how the Indian economy develops.

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What is a direct tax?

Direct taxes are paid by individuals or organisations to an oppressive institution, like the Government of India, and are often assessed on an individual's income and wealth. This kind of tax cannot be transferred to another person or entity for payment by the concerned person or organisation. Income tax and wealth tax are a few instances of direct taxes.

Types of Direct Taxes in India

(1) Corporate Tax

Organizations, whether domestic or international, are required to pay taxes to the government under the Indian Income Tax Act, 1961. The profits of domestic companies with shareholders other than themselves are subject to corporation tax. Foreign businesses are also required to pay taxes to the Indian government when their profits appear in India or are perceived to do so.

A firm must pay taxes on all of its profits, including dividends, interest, and royalties. The following is also covered by corporate tax:-

  (a) Minimum Alternative Tax (MAT):- On Zero Tax enterprises, the government imposes the MAT. These corporations prepare their accounts in accordance with the Companies Act.

  (b) Fringe Benefits Tax (FBT):- The FBT tax is levied on the extras that businesses give their employees, such as drivers and cleaners.

  (c) Dividend Distribution Tax (DDT):- A domestic firm is subject to taxation under the Dividend Distribution Tax on any sum that is declared, distributed, or paid as a dividend to the shareholders. Only domestic businesses are subject to it; international businesses are excluded from this tax provision.

  (d) Securities Transaction Tax (STT):- The SST is levied against the revenue that businesses get from taxable securities transactions. There is no additional fee for this tax.

(2) Wealth Tax

The wealth tax is levied against landowners. Whether or whether your property is making money is unimportant. If you own real estate, you must annually pay wealth tax to the Indian government based on the property's fair market value. Based on their residence status, individuals, Hindu Undivided Families (HUF), and business taxpayers are all required to pay wealth tax. The wealth tax legislation exempts several things from taxation. The wealth tax legislation does not apply to operating assets.

(3) Tax on Capital Gains

Anything a person owns for their own use or to invest in is considered one of their capital assets. Any item that may be utilised for more than a year and is not intended to be sold or liquidated during normal company operations is considered a capital asset for firms. Some examples of capital assets include equipment, vehicles, houses, stocks, bonds, works of art, enterprises, and farms.

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