The earliest known system of taxation was during the reign of the Egyptians around 3000 BC. Taxes are also known as involuntary fees charged by the government on individuals and businesses. Funds collected as taxes are utilised to fund public expenditures to better the nation’s infrastructure and welfare activities for the benefits of the citizens of the country.
Through the constitution of India, the respective state and the central government levy taxes on income generated by the citizens as per the law passed by the Parliament or the State Legislature. Taxes are primarily categorised as direct and indirect taxes. Read ahead to know more about taxes in India, types of taxes, benefits and tax policies in the country.
- What is Tax?
- Types of Taxes:
- Direct Tax:
- Income Tax:
- Income Tax Slab Rates for <60 Years (FY 2019-20):
- Income Tax Slab Rates for Individuals Between 60 and 80 Years of Age (FY 2019-20):
- Income Tax Slab Rates for Individuals Above 80 Years of Age (FY 2019-20):
- Corporate Tax:
- Prerequisite Tax:
- Capital Gains:
- Securities Transaction:
- Gift Tax Act:
- Expenditure Tax Act:
- Wealth Tax Act:
- Interest Tax Act:
- Indirect Tax:
- Other Taxes:
- Benefits of Paying Tax:
- Penalty for Not Paying Taxes:
- FAQs About Tax in India:
- News Related to Tax:
- Union Finance Ministry Releases Karnataka’s Instalment of Central Taxes for May
- COVID-19: Property Tax Payment Deadline Extended by Punjab Government
- Chandigarh MC: Pay Property Tax with Rebate Until End of July
- Centre Cuts TDS by 25% on Rent and Insurance Premium
- Finance Minister Announces Several Measures on EPF and Income Tax
- Select Tax Regime on Time To Avoid Higher TDS Deductions
- State Tax on Paper Lotteries Act 2005 Declared Unconstitutional by Kerala HC
- Donations Towards Shree Ram Janmabhoomi Theerth Kshetra Will Get Tax Exemptions
- IT Return Forms To Be Revised For 2020-21: CBDT
- Tax Regime Needs to be Chosen for TDS From Salary
- Donations By Employees Towards PM CARES Will Get 100% Tax Relief
- IT Refunds of up to Rs.5 Lakh To Be Processed Immediately: Govt.
- Deadline to Submit Form 15G and 15H for FY21 Extended to Avoid TDS
- COVID-19: Lower Withholding Tax Orders Validity Extended By 3 Months
- Equalisation Tax of 2% May Be Applicable on Overseas Ecommerce Companies
- COVID-19: Govt. Extends Tax Saving Investment for FY 2019-20 to End of June 2020
- GST on Mobile Phones Hiked by 4%
- Donation Details to be Pre-Filled While Filing ITR
What is Tax?
The word ‘Tax’ is derived from the Latin word Taxo, and is a mandatory fee charged by the government on individuals or entities to increase revenue to boost the economy through several projects and schemes. Not paying tax is punishable under the predetermined law.
Types of Taxes:
Taxes are broadly divided into two types – direct and indirect taxes. This is further subdivided into other categories. There are different Acts that govern taxes under the Income Tax Act. Let’s review the types of taxes:
- Direct Tax:
Taxes paid directly to the central or state government is known as a direct tax. The Central Board of Direct Taxes (CBDT) overlooks the functioning of direct taxes in India.
- Indirect Tax:
Taxes levied on goods and services availed is known as an indirect tax. This type of tax is collected at the source that offers products or services. The current indirect tax the government charges is known as Goods and Service Tax (GST).
Paid to the government directly by the individual or entity, Direct Tax is further categorized into the following:
Regulated by the Income Tax Act or the IT Act of 1961, the Act sets the rules and regulations of income tax in the country. Annual income through the form of salaries, investment gains, businesses, or from the property is paid directly to the government.
Income Tax Slab Rates for <60 Years (FY 2019-20):
|Income Tax Slabs||Income Tax Rates|
|Up to Rs.2.5 lakh||Nil|
|Rs.2.5 lakh to Rs.5 lakh||5% on income more than Rs.2.5 lakh + 4% cess|
|Rs.5 lakh to Rs.10 lakh||Rs.12,500 + 30% on income more than Rs.5 lakh + 4% cess|
|Rs.10 lakh and above||Rs.1,12,500 + 30% on income more than Rs.5 lakh + 4% cess|
Income Tax Slab Rates for Individuals Between 60 and 80 Years of Age (FY 2019-20):
|Income Tax Slabs||Income Tax Rates|
|Up to Rs.3 lakh||No Income Tax|
|Rs.3 lakh to Rs.5 lakh||5% on income more than Rs.3 lakh + 4% cess|
|Rs.5 lakh to Rs.10 lakh||Rs.10,000 + 20% on income more than Rs.5 lakh) + 4% cess|
|Rs.10 lakh and above||Rs.1,10,000 + 30% on income more than Rs.10 lakh + 4% cess|
Income Tax Slab Rates for Individuals Above 80 Years of Age (FY 2019-20):
|Income Tax Slabs||Income Tax Rates|
|Up to Rs.5 lakh||No Income Tax|
|Rs.5 lakh to Rs.10 lakh||20% on income more than Rs.5 lakh + 4% cess|
|Rs.10 lakh and above||Rs.1,00,000 + 30% on income more than Rs.10 lakh.|
Business entities or companies pay income tax to the government on profits earned, this type of tax is known as Corporate Tax. It is is further divided into several categories, they are:
- Banking Cash Transaction Tax: This form of tax existed between 2005 and 2009 and was levied on every banking transaction with a tax rate of 0.1%.
- Minimum Alternative Tax (MAT): Under Section 115 JA of the IT Act, the MAT was introduced. The current tax rate is 18.5% which entities pay to the Income Tax Department. Infrastructure and power sectors are exempt from paying this tax.
- Fringe Benefit Tax: Fringe benefits such as Leave Travel Allowance (LTA), employee welfare, accommodation, transportation costs, entertainment, ESOPs are taxed under the Fringe Benefit Tax.
- Dividend Distribution Tax: Based on the dividends paid by the company to its investors, tax is charged under the Dividend Distribution Tax. Currently, it’s charged at 15% on the net or gross income the investor receives from investment.
Benefits or perks offered by the company to its employees are taxed under the Prerequisite Tax. The purpose and use, official or personal have to be defined under this taxation.
Money received through the sale of property or investment is taxed under the Capital Gains tax. Both short and long-term investment capital gains are taxed.
Trading of stocks and certain securities are taxed under the Securities Transaction. The tax is calculated on the share price and on securities traded on the Indian Stock Exchange (ISE).
Gift Tax Act:
Under Section 56 (2) of the IT Act 1958, gifts received by an individual are taxed under the Gift Tax Act. However, this law was abolished in 1998. This was later introduced through the Finance Act 2004. Cash gifts of less than Rs.50,000 are exempted from tax. Property gifts such as land or building, the recipient has to bear the required income tax of the stamp duty value of the property is more than Rs.50,000.
Expenditure Tax Act:
Expenses incurred while availing the services of a hotel or a restaurant are taxed under the Expenditure Tax Act 1987. Certain costs are levied with this type of tax if the value is more than Rs.3,000 in a hotel or restaurant.
Wealth Tax Act:
Taxes on the net worth of an individual, entity or HUF (Hindu Undivided Family) is known as Wealth Tax, levied under the Wealth Tax, 1951; however, this has been replaced with the surcharge in recent times.
Interest Tax Act:
As per the Interest Tax Act, 1974, interest earned after the 31st of March 1983 will be taxable at 3.5% and credit institutions will be levied an interest of 2% of the taxable amount.
Taxes collected at the sources that sell services or goods are referred to as Indirect Tax. It is added to the price of the goods or services and is currently known as the Goods and Service Tax (GST).
- GST: Implemented in 2017, the Goods and Service Tax (GST) replaced the Value Added Tax (VAT), sales tax, customs duty, excise, and Octroi form of taxation on goods and services. Some services and goods exempted from GST are petrol and diesel, electricity, and petroleum products.
Other taxes which are a lower source of funds through taxes paid to the government are:
- Property Tax: Local municipal bodies or authorities levy Property Tax for the maintenance and upkeep of civil services. Both commercial and residential properties attract this type of tax.
- Professional Tax: The Government of India levies the professional tax on individuals who are salaried or professionals such as doctors, lawyers, etc. The tax rate differs between states and not all states charge this tax.
- Registration Fees, Stamp Duty, Transfer Tax: In addition to the property tax, Stamp Duty, Registration Charges or Transfer fee is collected owing to the additional charges towards the transaction.
- Entertainment Tax: Taxes levied on television series, feature films, exhibitions, etc. are taxed under the Entertainment Tax. The gross collections from earnings are considered while calculating this type of tax.
- Toll and Road Tax: Road infrastructure developed by the government attracts toll for the purpose of maintaining the road and facilities.
- Education Cess: To fund the educational programmes initiated by the government, a cess of 2% is charged on an individual’s income.
- Entry Tax: Certain states in India collect Entry Tax on all goods that enter the state through the e-commerce establishment. The rate varies from 5.5% to 10%.
Benefits of Paying Tax:
The primary reason the government collects taxes from individuals and entities is to fund its welfare schemes, improve infrastructure, and towards the upliftment of the society. Below are some benefits of paying tax:
- Paying income tax regularly and on time ensures the government is able to provide services to citizens without any issues.
- Fund infrastructure projects to fuel the economy of the country.
- Develop the country and fund welfare projects.
- Fund expenditure arising out of defence.
- Salaries to state and central government employees.
- Provide public transportation.
- Fund pension schemes.
- Fund public education.
- Provide public utilities such as water, sewage treatment, waste management, etc.
Penalty for Not Paying Taxes:
By not paying taxes you could be imposed with penalties which can range from fines to imprisonment. It depends on the severity of the case. You will end up paying the tax along with fine and interest for the period of non-payment or maybe even imprisonment.
FAQs About Tax in India:
Here are some frequently asked questions about Taxation in India:
Visit the e-filing website and log in with your Username and Password along with your Date of Birth (DOB) or the Date of Incorporation. Follow the procedure to upload your IT Returns. Choose the correct ITr, assessment year and the XML file. Upload the Digital Signature Certificate (if required), and click on Submit.
Everyone pays taxes in some form or the other. While income tax has exemption on a certain limit of income you earn, the same does not apply on GST, which is applicable to all goods and services rendered by an individual or an entity.
Based on your age and the income you earn, the income tax is calculated. To know more about the income tax liability visit the official income tax website.
Income which is chargeable for tax is known as taxable income, while exempt income is an exemption on certain income from tax by the IT department.
Assessment year is the year during which you earn an income, while the following year is the financial year during which the income is calculated for tax.
Once you file your income tax returns, you can claim refunds for the excess paid as tax.
Under Section 14 of the IT Act, 1961, income taxpayers are taxed under the below heads:
2. Profits and gains of business or profession.
3. Income from house property.
4. Income from capital gains.
5. Other sources.
The total income from salary, capital gains, profits from business or profession, income from the property and other sources of income is known as the gross total income. However, the total income is the gross total income less the tax deductions under Section 80C to 80U.
Also referred to as Income Tax Return (ITR), is a form that declares particulars of your income earned in a financial year and taxes paid to the IT department. The form also includes carry-forward of loss and claim refund. There are different forms for filing returns for different sources of income. You can download the same from the IT department’s official website.
Below are the methods you can file ITR:
1. In paper form.
2. Electronically with a digital signature.
3. Transmitting the data electronically through electronic verification code.
4. Transmitting the data electronically, with the subsequent submission of the verification of the ITR in Return Form ITR-V.
You can contact 1800 180 1961 for any queries related to e-filing.
Also, Check: Official List of Income Tax Department Toll-Free Contact Numbers and Email IDs
Apart from contributing to the development of the nation and your duty to the country, filing your return of income validates your creditworthiness for financial institutions to offer benefits such as bank credits, etc.
As per law, it is mandatory for you to file your returns from income, you can file the loss incurred during the assessment year and submit it by the due date. The loss sustained during the assessment year will be adjusted the subsequent year(s) against positive income.
Under Section 139 of the Income Tax Act, a person has to file income tax returns within the due date, failing which you need to pay interest on the tax due. As per the assessment year 2018-19, the fee to be paid if you fail to furnish your income tax returns is as follows (Fee for late filing shall not be more than Rs.1,000 of the total income is not more than Rs.5 lakh):
1. If the return is furnished on or before 31 December of the assessment year, the fee is Rs.5,000.
2. In other cases, it is Rs.10,000.
Only upon completion of self-assessment of your income, does your advance payment of tax or interests in the form of TDS or TCS will take the character of the tax due. The IT department is intimated of filing of the return of income through the self-assessment which lets the government assume rights over the taxes paid by you. Failure to file the return of income will attract a penalty.
You claim the excess tax through a refund by filing your income tax returns. The refund will be credited to your bank account through the ECS.
You can revise the ITR anytime during the assessment year. If your original ITR was filed manually or through a paper format, then you cannot change it electronically or through the online mode.
Not paying taxes attract penalty, interests, and prosecution. It can lead to rigorous imprisonment from 3 months to 2 years. If tax sought is more than Rs.25 lakh, the penalty could be from 6 months to 7 years.
By filing your income tax return through the e-filing method you can comfortably file it from any place or time. E-filing is generally processed much quicker compared to returns filed manually.
There are no disadvantages of filing your income tax returns. In fact, if you do not file your returns, you will attract penalty and prosecution as per the Income Tax Act.
Union Finance Ministry Releases Karnataka’s Instalment of Central Taxes for May
– May 22, 2020
The Union Finance Ministry has released Karnataka’s instalment of Central taxes of Rs.1600 crore for the month of May. The state received a similar amount in the month of April as well. In a tweet, the ministry said that the sanctioned amount is based on tax receipts proposed in the 2020-21 Budget and not as per the actuals. However, officials in Karnataka pointed out that the devolution is low compared to what was originally budgeted. The state’s budgeted share of central taxes for the said month was more than Rs.2,000 crore.
COVID-19: Property Tax Payment Deadline Extended by Punjab Government
– May 21, 2020
The municipal corporations of the state of Punjab have announced that the deadline to pay property taxes has been extended to 30 June 2020. The decision came amid the pandemic, which has led to lockdowns and citizens are finding it difficult to pay the property tax on time. Also, the deadline to pay One-Time Settlement (OTS) for arrears of sewerage and water charges in local municipalities has been extended up to 30 June 2020. Citizens can avail the rebate of 10% on payment of property tax until 30 June; however, non-payment by the extended date will invite a 10% penalty on the principal amount within 3 months. Those who still fail to pay the property taxes will have to pay a penalty of 20% of the principal amount along with interest of 18% from the due date till the date of realisation.
Chandigarh MC: Pay Property Tax with Rebate Until End of July
– May 20, 2020
All assessees, both commercial and residential, can pay property taxes with rebate until the end of July 2020, announced the Chandigarh Municipal Corporation. While commercial properties can avail a rebate of 10%, residential properties can avail a 20% rebate on the property tax. However, if the property tax is paid after 31 July 2020, there will be a 25% penalty to be levied along with interest on the principal. Citizens can pay their property taxes at e-Sampark centres or online (http://sampark.chd.nic.in). Defence personnel, veterans, economically weaker sections and widows are exempted.
Centre Cuts TDS by 25% on Rent and Insurance Premium
– May 18, 2020
In continuation of several measures undertaken by the Central Government, the Finance Ministry announced that the income tax department has decided to reduce TDS on payment of rent, insurance premium, dividend, acquisition of immovable property and professional fee by 25% for the remainder of the financial year. The new rates are applicable until 31 March 2021 as the directive was issued by the Central Board of Direct Taxes (CBDT). It said that TCS on sale of motor vehicles worth more than Rs.10 lakh has been reduced to 0.75%, TDS has been reduced to 23 such items. TDS on insurance premiums has been cut from 5% to 3.75% and TDS on rent, interest and dividend have been reduced from 10% to 7.5%. The rate for acquisition of immovable property has been decreased to 0.75%. Also, TDS on e-commerce has been cut from 1% to 0.75%. Likewise, TDS on professional tax has been cut from 2% to 1.5%, while TDS on payments towards deposits under NSS have been cut from 10% to 7.5%.
Finance Minister Announces Several Measures on EPF and Income Tax
– May 15, 2020
The Finance Minister has announced several measures on personal finance to increase demand in the country, which is sagging due to the lockdown to contain the spread of coronavirus in the country. The Finance Minister said that the due date to file ITR has been extended to 30 November 2020. A cut of 25% on TDS/TCS rate for non-salaried payments up till 31 March 2021. Also, to increase the take-home salary of employees, EPF contribution of both the employee and the employer will be cut to 10% from the current 12%. However, PSUs and CPSEs will continue to contribute 12%. Also, the Central Government will pay 24% of the monthly income into EPF accounts below Rs.15,000 per month. This will be applicable to employees working in establishments with up to 100 employees and 90% or more employees earning less than Rs.15,000 per month.
Select Tax Regime on Time To Avoid Higher TDS Deductions
– May 13, 2020
Employees must choose the type of tax regime at the beginning of the financial year and this will continue until the end of FY. However, employees can change their choice only at the time of filing their ITR. Hence, if you do not choose the lower tax bracket regime, you may end up paying higher TDS deductions based on the old tax regime in case the tax outgo is higher under it and no option of changing the tax regime would be provided during the year.
State Tax on Paper Lotteries Act 2005 Declared Unconstitutional by Kerala HC
– May 12, 2020
The Kerala Paper Lotteries Act 2005 has been declared unconstitutional by the Kerala High Court. The judgement by the Kerala HC states that Act which levies licence fee under Section 5BA of Kerala General Sales Tax Act, which charged indirect tax on the sale of lottery tickets within the state was declared unconstitutional. The Kerala High Court said that as per the Lotteries (Regulation) Act, 1998 it does not provide any tax in paper lotteries and it’s covered under the Union list and does not come under the purview of the State.
Donations Towards Shree Ram Janmabhoomi Theerth Kshetra Will Get Tax Exemptions
– May 11, 2020
The Government of India, through a notification, said that donations to Shree Ram Janmabhoomi Teerth Kshetra will be exempted from attracting income tax under Section 80G of the IT Act. The government said the tax exemption for the donations comes under the Section 80G since the place is of public worship and a place of historic importance for the financial year 2020-21, relevant to the AY 2021-22.
IT Return Forms To Be Revised For 2020-21: CBDT
– April 24, 2020
The Income Tax Return (ITR) Forms for 2020-21 will be revised to enable taxpayers to make donations and investments until the end of June 2020. The tax benefit can be claimed on the taxable income for the AY 2019-20. By the end of April 2020, the revised ITR forms will be notified by the Central Board of Direct Taxes (CBDT). The board said that with the government offering several relaxations or due dates for several compliance requirements, the ITR forms require revision to include other tax benefits after the extension of deadlines. Through an Ordinance, the government has extended the timeline to June 2020 to make investments and other donations to be included in the current assessment year.
Tax Regime Needs to be Chosen for TDS From Salary
– April 15, 2020
In a circular issued by the Central Board of Direct Taxes (CBDT), employers need to deduct TDS from salary for FY2020-21 on the basis of either the new or the old tax regime whichever the employee chooses from. Also, once the employee chooses such an option, they cannot change it during the financial year however, they can change it at the time of filing IT Returns. This means that if the employee chooses to opt for the new tax regime and the TDS is deducted from their salary, it cannot be revised to the old tax regime during the financial year however, they can while filing for the income tax returns. The Finance Ministry while presenting this year’s budget offered a new tax regime while continuing the old tax regime as well. Taxpayers can either opt the new or the old taxation system.
Donations By Employees Towards PM CARES Will Get 100% Tax Relief
– April 14, 2020
Donations by employees towards PM CARES can claim 100% tax relief. Employees can claim it through their Form-16. The Central Board of Direct Taxes (CBDT) said that since the tax department cannot issue tax deduction certificates, tax relief will be provided under Section 80G. The circular also said that donations made by an employee through the employer, separate certificates will not be issued since its a consolidated payment. The centre had notified earlier that contributions made to PM-CARES fund are eligible for 100% tax relief under Section 80G compared to the earlier 50% tax relief.
IT Refunds of up to Rs.5 Lakh To Be Processed Immediately: Govt.
– April 13, 2020
The IT Department, through a Tweet, has said that all pending IT refunds of up to Rs.5 lakh will be issued immediately to businesses entities and individuals. The statement comes amid the ongoing Coronavirus lockdown in the country. About 14 lakh taxpayers will be benefited from this decision by the IT department. Also, the statement said that GST custom refunds will also be issued immediately. With the decision to refund, it will enable people to get the money during these trying times. The Government of India has decided to process the IT refunds immediately to offer relief to individuals and businesses so that they have money during the lockdown. Taxpayers can get any excess tax paid as a refund when they file their IT Returns.
Deadline to Submit Form 15G and 15H for FY21 Extended to Avoid TDS
– April 6, 2020
The Central Board of Direct Taxes (CBDT) has extended the deadline for the submission of Form 15G and 15H for FY21, valid till 30 June 2020. This means that investors who need to submit Form 15G and 15H for nil or lower deduction of tax can do so by the first week of July this year. The CBDT in an order released through its Twitter account said that if taxpayers have submitted these forms to banks or other institutions for FY20, the forms will also be valid till 30 June 2020 for FY21. In case the taxpayers are yet to submit these forms, then they should do so by the 30th of June 2020 by providing the details of such credits or payments in the TDS statement by 30 June 2020. In the wake of the nationwide 21-day lockdown to stop the spread of the deadly Coronavirus infection across the country, taxpayers have been offered relief to submit their tax assessments.
COVID-19: Lower Withholding Tax Orders Validity Extended By 3 Months
– April 1, 2020
As per the directive of the finance ministry of India, the validity of lower or nil withholding tax orders validity has been extended by three months till 30 June 2020 in a directive by the Finance Ministry of India. The advisory came in the wake of the lockdown announced by the centre due to the rising Coronavirus infections across the country. Applications of taxpayers for nil or lower deduction of TCS/TDS is pending for disposal and hence the validity of such cases where such certificates were issued for the financial year 2019-20 will be extended to 30 June 2020. In scenarios where the taxpayer has not applied for such certificates for FY 2020-21 which were issued for 2019-20 certificates, will be valid until 30 June 2020.
Equalisation Tax of 2% May Be Applicable on Overseas Ecommerce Companies
– March 30, 2020
Cost of Netflix subscription or Airbnb bills may increase after the government included all overseas e-commerce transactions which originate from the country under the equalisation levy. An equalisation levy of 2% will be applicable on sales done through e-commerce companies in India as per the amended Finance Bill. This type of levy was introduced back in 2016 and was applicable to advertising and related services. Now, digital e-commerce transactions originating from India will be included in the equalisation levy.
COVID-19: Govt. Extends Tax Saving Investment for FY 2019-20 to End of June 2020
– March 27, 2020
The Indian government has extended the due date to file tax investment for the financial year 2019-20. The previous deadline was 31 March 2020. The extension was announced by the Finance Minister stating that due dates have been extended for the issue of notice, approval order, intimation, notification, sanction order, furnishing of returns, filing of an appeal, applications reports, statements and the due date for completion of proceedings to 30 June 2020. In the wake of the rising Coronavirus infection in India, the government has announced lockdown and to ease the burden on taxpayers, the extension was announced by the Finance ministry.
GST on Mobile Phones Hiked by 4%
– March 17, 2020
The Goods and Services Tax (GST) on mobile handsets and certain components has been hiked by 4% by the federal indirect tax body, the GST Council. The new GST rate for mobile handsets will come into effect from 1 April 2020. Union Finance Minister Nirmala Sitharaman also announced that the tax rate on aircraft maintenance services has been lowered from 18% to 5%. As for the other items such as footwear and fertilizers, the union minister said that if there is a need to calibrate the GST to remove the duty inversion, they will examine it at a future meeting. The GST on machine-made and handmade matchsticks to 12% from 18% and 5% respectively.
Donation Details to be Pre-Filled While Filing ITR
– February 19, 2020
To ease the process of claiming deductions under Section 80G of the Income Tax Act, it has been proposed under the 2020 Budget that donee’s information will be pre-filled in the taxpayer’s returns. As per the announcement, information such as donations from charitable institutions will be given to the Central Board of Direct Taxes (CBDT), which will be automatically pre-filled in the ITR forms. Charitable institutions need to register with the income tax department to ensure taxpayers get the right tax exemptions. A unique number will be provided to the charitable institution and would be valid for 3 years initially.