We are not going to harass you by giving you Tax definitions straight out of a textbook. We’ve put together the different types of taxes that will affect you if you are an individual, or a company.
We all know what direct taxes are, don’t we? They are the ones which cause us maximum damage. Personal Income Tax, Wealth Tax and Corporate Tax are the general and common types of direct taxes that hit most of us.
Let us look at each kind of taxes in little bit of detail:
Personal Income Tax
This is the tax that is charged to common people like you and us on the income earned in India. The Finance Act has set out rates or shall we say slabs which define how much tax you will pay. You can find these slabs here. To determine your taxable income, your earnings will fall under any of the following heads.
- Income from Salary
- Income from business or profession
- Income from house or property
- Income from Capital Gain
- Income from other sources
All hope is not lost as you can also utilize many of the deductions and exemptions available to you under the Income Tax Act 1961.
Corporate Tax is another direct tax that is levied on companies in India. For domestic companies, the tax rate is 30% which by the way is at par with other countries in the world. You should also know that a 5% surcharge is applied, on the tax paid if the company has a turnover exceeding Rs. 1 crore. Top this off with a 3% education cess!
In case of a foreign company, the base corporate tax rate is 40%, 2.5% surcharge. For domestic companies, corporate tax is levied on their total (global) income whereas for foreign companies only the income which is sourced from the Indian Territory is subject to tax.
Wealth tax is levied at the rate of 1% on wealth exceeding Rs. 30 lakhs. To find out more on wealth tax, who pays it and on what assets it is charged, click here.
Indirect taxes are those which are not levied upon you directly however the commoner pays the taxes via consumption, expenditure and right on income or property. Value Added Tax (VAT), Sales Tax, Customs, Service Tax, Stamp Duty and Excise Tax are some of the common Indirect Taxes that are levied. In case of direct taxes, the rate of tax that you pay is proportional to your income levels. Indirect taxes are equal for everyone. So it doesn’t matter if you are rich or poor. The minute you start spending or investing, you start paying Indirect Tax! Ouch!
We hope that you’ve got your head wrapped around the different types of taxes in India.