Direct and Indirect Taxes
What is GST?
GST stands for Goods and Services Tax, which is a value-added tax levied
on the supply of goods and services in India. It was introduced on July
1, 2017, and replaced several indirect taxes that were previously
levied by the central and state governments, such as excise duty,
service tax, VAT, and others.
GST is a comprehensive tax that is levied on every stage of the supply
chain, from manufacturing to consumption. It is based on the principle
of input tax credit, which allows businesses to claim credit for taxes
paid on inputs used in the production of goods or services.
GST aims to simplify the tax structure, reduce cascading effects,
promote a common national market, and improve tax administration. It
eliminates multiple indirect taxes and streamlines the taxation system.
Direct Taxes:
Direct taxes are levied directly on individuals and organizations based on their income, profits, or gains. These taxes are paid directly by the taxpayer to the government. In India, the primary direct taxes are as follows:Income Tax: Income tax is the tax imposed on the income earned by individuals, Hindu Undivided Families (HUFs), companies, and other entities. It is calculated based on the income slab rates applicable to different categories of taxpayers. The income tax system in India follows a progressive structure, where higher income earners are subject to higher tax rates.Corporate Tax: Corporate tax is levied on the profits earned by domestic companies, foreign companies, and corporations operating in India. The tax rate varies based on factors such as the type of company, turnover, and other specific provisions.Capital Gains Tax: Capital gains tax is applicable when individuals or businesses make a profit from the sale of assets, such as property, stocks, or mutual funds. The tax rate for capital gains depends on the holding period of the asset and whether it is considered a short-term or long-term capital gain.Securities Transaction Tax (STT): STT is a tax levied on the purchase or sale of securities, including stocks, derivatives, and equity-oriented mutual funds, traded in recognized stock exchanges in India.Indirect Taxes:
Indirect taxes, as the name suggests, are levied indirectly on the consumption, production, or sale of goods and services. These taxes are not directly borne by the taxpayer but are passed on to the end consumer as part of the product/service cost. In India, the major types of indirect taxes include:
Goods and Services Tax (GST): GST is a comprehensive indirect tax levied on the supply of goods and services at each stage of the supply chain, from manufacturing to consumption. It has replaced multiple indirect taxes such as central excise duty, service tax, value-added tax (VAT), and more. GST is categorized into Central GST (CGST), State GST (SGST), Integrated GST (IGST), and Union Territory GST (UTGST).
Customs Duty: Customs duty is imposed on goods imported into India and is regulated by the Customs Act. It includes basic customs duty, additional customs duty (countervailing duty), and special additional duty. The rates of customs duty vary depending on the nature of the goods and the country of origin.
Excise Duty: Excise duty is levied on the production or manufacture of goods within the country. It is imposed on goods like tobacco, petroleum products, alcoholic beverages, and certain luxury items. Excise duty rates may vary based on the specific goods and their classification.
Service Tax: Service tax was replaced by GST; however, it is still applicable to specific services that are not covered under GST. Service tax is levied on various services provided by businesses, professionals, and service providers.
Key Features and Importance:
Revenue Generation: Direct and indirect taxes play a vital role in generating revenue for the government to fund public expenditure, infrastructure development, social welfare programs, and other essential services.
Redistribution of Wealth: Direct taxes, especially income tax, contribute to the redistribution of wealth by taxing higher-income individuals and entities at a proportionately higher rate, aiming to reduce income
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