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Different Taxes in India – All about Direct and Indirect Tax

Every year at the end of the month of March, every company, organization, institution and the Government sector offices and even the employees working in the organizations etc. have so many questions revolving in their mind that- Do we need to Pay Tax? Are there any changes in the rates and schemes? Well, Taxes are mandatory. Every eligible citizen of India has to pay taxes.

What is Tax

Tax is a charge that is levied by the Central Government or the State Government of India. The tax charge is implemented for the betterment of the country’s economy and improving the standards and welfare of the country. The tax rules and the types of taxes are constituted by the Ministry of Finance’s Department of Revenue.

Different Types of Taxes in India

The Various types of taxes in India are

  • Direct Taxes
  • Indirect Taxes
  • Other Taxes

Direct Tax

Direct Taxes are the taxes that are directly paid or imposed to the Government of India. These taxes are controlled by the Government body, Department of Revenue named as Central Board of Direct Taxes (CBDT). The different types of direct taxes in India are

  1. Income Tax– Income Tax in India is levied on anybody who earns an income in India, whether they are resident and non-resident. They are classified into some categories like- individual person, Hindu Undivided Family (HUF), Association of Person (AOP), Body of Individuals, Corporate Firms, Companies, Local Authorities and another artificial jurisdictional person who have earned an income and they are eligible to pay the income tax. The Income tax is charged on the total income of the previous year at the rates prescribed for the particular assessment year. According to the assessment year of 2017-2018 the income tax rates are categorized on the basis of income slab.

The income tax rates are distributed in 5%, 10%, 20%, and 30% on the basis of the total income. A Surcharge of 10% of the income tax is added for the income between Rs 50 Lacs to 1 Crore. A surcharge of 15% is charged if the total income exceeds Rs 1 Crore.An Educational Cess of 3% is also charged in case of every individual.

For more details regarding the Income Tax rates for FY 17-18 please click here

  1. Capital Gains Tax– It is a tax gain on capital. If you are selling a property, bond or dealing any contract and you are gaining a profit in it, then you need to pay Capital Gains Tax. This type of tax is of two types- short term and long term. The long term Capital Gains Tax is charged if the capital assets are charged for more than 1 year in a shared case and 3 years in the case of contract whereas short term Capital Gains Tax is charged if it is less than the certain period mentioned above for the long term.
  2. Securities Transaction Tax– This type of tax is applicable, on the platform of stock exchange. If you are buying or selling equity shares, derivative instruments, equity oriented Mutual Funds, then the Security Transaction Tax is implemented.

The Current Security Transaction Tax Rates

Market Type Current Rate
Future and Options 0.017%
Capital Market (Delivery) 0.125%
Capital Market (Intra-Day) 0.025%

 

  1. Wealth Tax- This tax was imposed on one individual if their net wealth exceeds 30 lacs at the rate of 1% on the amount exceeding 30 lacs. Wealth Tax is no longer leviable from assessment year 2016-17.
  2. Corporate Tax- Corporates are the annual or the yearly taxes that are payable on the income of the corporate organization operating in India. These are broadly classified as Domestic and Foreign Companies.

Indirect Taxes

Indirect Taxes are the taxes that are not directly levied on the tax payer or the individual, but indirectly imposed on the expense incurred by the individual. Like for an example, when we buy any product, we pay GST (Previously VAT or Service Tax in case of Services). Following are the types of the indirect taxes

  1. Good and Services Tax (GST)– It is a type of Indirect Tax which is charged on the sale, consumption, manufacture of Goods and services at the National Level. GST was amended by the Constitution of India (122nd Amendment Bill) 2014. GST is implemented for country’s economic growth and reduce the overall tax burden on the goods in the country. The other taxes that are included in the umbrella of GST are
    1. Value Added Tax (VAT)– The Sales Tax is complimented with Value Added Tax to make it uniform across the country. These taxes are applied when the goods are sold completely and finally to the customer. VAT is now a part of Goods and Service Tax (GST)
    2. Excise Duty– Excise duty is the type of indirect tax that is levied by the Government on the goods and commodities that are manufactured in India. These goods are meant for the domestic consumption. Ex- Salt, sugar, newspapers, Tobacco, Gasoline, Alcohol etc. Excise is also a part of GST now.
    3. Service Tax–  The Service providers are the connected to the service tax. The service tax is charged on the aggregate amount that is received by the service provider. Example- leasing, The INTERNET, transportation etc. are subjected to the service tax. Service
    4. Customs Duty– These are the indirect taxes that are imposed on the goods that are imposed on the goods that are exported from India and imported to India.
    5. Sales Tax– These taxes are imposed by the Government on the sale and purchase of the goods in the Indian Market. These are charged on the movable goods. Anything you purchase in the market, you pay sales tax for it. Examples are- telephone, salon, the advertising company, health centre etc. The last rate of the Sales tax is 14.5%. It is now replaced by GST as is the case with all above stated taxes.

GST is divided into 3 parts

  1. Central GST (Levied by Union Government of India)
  2. State GST (Levied by Various State Governments)
  3. Integrated GST (Levied by Union Government when there is a movement of Goods or Services across state lines.

GST Rates comprises of CGST + SGST which are equal and half of below given rates. GST Rate Slabs are given below

The GST Rates are distributed on the basis of the product category

GST RATES PRODUCTS
GST (0%) Milk, jaggery, fresh vegetables, unbranded honey and paneer, coconut water, prasad, salt
GST (5%) Kerosene, Coal, tea, spectacles, cashew nuts, mat flooring, raisin, LPG, Footwear (<Rs 500), Apparels (<Rs 1000).
GST (12%) Butter, ghee, almonds, umbrellas, mobiles, packed coconut water, preparations of vegetables, fruits like (Chutney, Jam, Jelly, Pickle)
GST (18%) Hair Oil, toothpaste, computers, CCTV, cornflakes, staplers, ice cream, computer monitor (<17 inches), printers.
GST (28%) Luxury Products, Betting, Horse Racing, 5 Star Hotels, Cinema Tickets etc.

 

  • For the restaurants serving alcohol, the tax charged will be 18%.
  • Education, Healthcare are going to be exempted from GST.
  • GST charges on the services on Non-AC Restaurants will be 12%.
  • GST on Gold and Jewelery will be 3%
  • GST on Diamond and Precious Stones will be 0.25%
  • Petroleum Products and Liquor is not a part of GST regime and is still under the VAT and Excise Model.

Other Indirect Taxes

  1. Professional Tax– It is the tax that is charged on the income on the basis of the profession or employment. An individual earning an income or anyone holding a profession such as a lawyer, doctor, interior or fashion designer etc.
  2. Municipal Tax– This tax is imposed by the local authority called as Municipality of the country. These are the local taxes that are paid to the Municipal Corporation if he or she owes a house property. These taxes are paid for the maintenance of sewage, road, civic services.
  3. Entertainment Tax– This tax is imposed by the State Government on the financial transaction that is related to the Entertainment. These taxes are imposed on the movie tickets, stage/ theater shows, broadcasting, DTH and cable services. This tax is no longer active and covered under the umbrella of GST from July 1st, 2017 Onwards.
  4. Stamp Duty, Registration Fees, Transfer Tax–  When you are purchasing a property then you have to pay additional charges like the stamp duty, registration fees, transfer tax etc. This tax is levied by the Government for preparing the legal documents of the property. This is the tax is imposed over the handling of the title of the property ownership from one person to another. The amount varies from property to property.
  5. Education Cess and Surcharge– The Education Cess is divided into two types – Primary Education Cess and Higher Secondary Education Cess. This tax is levied by the Government to improve the education quality in the public schools and colleges. It comprises of the 3% of the income tax. The Cess charges are also included under the GST family structure. Whereas, the surcharge is an extra charge that is clubbed to your existing tax calculation. This tax is applied on the tax amount.
  6. Gift Tax– If you receive the gift from someone, it is merged with your income and you need to pay tax on it. This tax is called Gift Tax. This tax is applicable if the amount is more than Rs 50,000/- in a year.
  7. Swachh Bharat Cess – This tax is recently imposed by the Government. The tax is applicable to all the taxable services from 15th November 2015. The effective rate of Swachh Bharat Cess is 0.5%. Swachh Bharat Cess is abolished after the introduction of GST.
  8. Krishi Kalyan Cess– This tax is levied for the welfare of the farmers. The effective rate of the Krishi Kalyan Cess is 0.5%. This tax came into effect in the year June 1st, 2016. Krishi Kalyan Cess has been abolished after introduction of GST
  9. Entry Tax– This tax is levied or charged on the goods that are bought within the state or from outside the state. Entry Tax is separately charged by the State Government of India. This tax is also known as the Octroi Tax. Octroi is no longer levied after the introduction of GST.

Some other forms of taxes are

  • Dividend tax
  • Infrastructure tax
  • Property tax
  • Luxury tax
  • Toll tax.

The above Cess mentioned like -Swachh Bharat Cess, Krishi Kalyan Cess and the Entry Tax are no longer active now and they are clubbed with GST.

Latest Update- The latest report on tax says that after the introduction of the GST all the indirect taxes are merged under GST. So, the above taxes are removed due to the arrival of GST in the queue of Taxes. So, the taxes are reduced from number 25 to 10.

HRA (House Rent Allowance) – Eligibility,Documents required and Calculation

House rent allowance (HRA) is the housing benefit provided by the employer as a part of the employee’s salary. If a person gets housing allowance and he or she lives in a rented accommodation then he or she can claim for tax exemption on the housing allowance under section 10 (13A) of the Income tax act. An employer can make partial payment or full payment of the house rent.

Further, this allowance is available only for people living in a rented accommodation. In case a person is not living in a rented houses, then the entire housing allowances provided by the employer is taxable.

Eligibility for HRA Tax Exemption 

  • The amount of house rent allowance that will be provided depends upon the residential area of the person. If a person stays in a rural area then 40% of the house rent will be provided. However, if he or she stays in an urban area then 50% will be provided.
  • If the rent paid is more than one lakh/ annum then the PAN card of the landlord is must.
  • In order to make Tax exemption claim the rent receipt must be provided
  • Tax exemption claim can also be made if a person is paying rent to his or her family member except of a person’s spouse. A person cannot claim for tax exemption by showing a receipt of rent paid to his or her spouse.
  • In case a person owns his or her house then he or she is not eligible for HRA exemptions.
  • Tax is exempted on excess amount of rent paid over 10% of the total salary.

How HRA is Calculated

Thus, the following factors are taken into account while calculating the House Rent Allowances:

  • Total Salary
  • Amount of HRA received as a part of the salary
  • Total amount of rent
  • Location or residential area

Let us understand how HRA is calculated with the help of the following example.

Mr Ajay receives a monthly salary of Rs 30000. He lives in an apartment where he pays a monthly rent of Rs 15000.Therefore depending upon his residential area he can claim for 40 to 50% of allowances as HRA from his employer. The amount on which the tax is exempted can be calculated as:

Calculating HRA

Total salary of Ajay- Rs 30000

Total HRA received from the employer-20000

Excess amount of rent paid over 10% of the salary=15000-(10% of 30000)=15000-3000=12000

Thus, Ajay will have to pay tax on the following amount=20000-12000=8000

HRA that can be claimed for Tax Exemption is 12000/Month or 1.44 Lakh/Annum.

Section 80GG allows an employee to claim HRA deduction even when he or she does not get any house rent allowances from the employer. Benefits under section 80 GG can be claimed on the following grounds:

  • If a person lives in rented accommodation but does not get any allowances from the employer
  • When a person is self-employed or in business
  • When a person does not own any property
  • The house which is inhabited, or business is carried out should not be in the name of the spouse or children

If all of the above mentioned criteria met then a person claim for 25% or Rs 5000 or 10% less than the actual income for tax exemption under section 80GG.

HRA And TAX Deduction

Tax exemption on HRA is calculated on the basis of the guidelines provided under section 10(13A) of the Income Tax Act. A person who is self-employed cannot claim for HRA exemption under 10(13A), he or she will have to claim tax exemption under section 80GG of the income tax Act. Further, if a person pays more than Rs 1 lakh as rent then the PAN card of his or her landlord must be provided. If in case the landlord does not have a PAN card then a declaration of the same must be provided by the landlord along his or her name and address to the employer. PAN card of the landlord is asked so as to calculate the tax deduction on the person’s property.

Documents Required for HRA

The following documents must be provided while making a HRA claim:

  1. Form 12BB: It is a declaration comprising of the employer’s name, address and Permanent Account Number.
  2. Document to prove the claim like lease agreement, electricity bill, water supply bill, housing society addressing the tenancy or proof of payment of bill

How to Claim HRA For Parents with an Example

In case a person receives House Rent Allowance from his or her employer but lives with his or her parents then tax exemption can be claimed entering into a rental agreement with the parents.

In such a case, a person pays back to his or her parents and also reduces the tax burden. But the rent receipts must be provided to the employer to make tax exemption claims.

For example, Mr Raj works with multi-national company in Mumbai. He gets House rent allowances every month from his employer. He lives with his parents and pays rent to them as an act of good gesture. His parents have entered into a rental agreement with him so as to reduce his tax burden. In such a case Raj’s parents will have to claim for tax returns and Raj can claim for tax exemption on house rent by providing the receipt he received from his parents. In this way, the money will stay with the family itself.

Filling ITR Offline by Post

Filing an Income Tax Return by Post is quite easy just like a child’s play. You just need to get a form printed out which will take a few seconds and then post it to the required Income Tax Office Address which is located in Bangalore. Let us know the complete details about the process of Filling ITR offline by Post.

Income-Tax Return

An Income Tax Return is the type of tax-form which is used to file income tax with the Income Tax Department. The Tax Return is usually a predefined worksheet formula with the income figures which are used to calculate the tax liability in the documents.

The Law states that the tax must be filled every year for an individual or business that received income during the year, whether through the regular income/wages, dividends, interests, capital gains or other sources.

Tax Return, regardless of whether it relates to an individual or a business, must be filled by a specific date. If the return shows that an excess amount of tax has been paid during a given year the assesse is eligible for a “Tax Refund”, subject to the departments, interpretations, and calculations.

How to fill ITR Offline by Post

For sending the ITR file through speed post a unique Pin Code (560500) is introduced and allocated to the Centralized Processing Center (CPC), Income Tax Department located in Bengaluru.

Steps from filling up the form offline to Posting and Sending It to CPC Bangalore.

Step 1. Visit the official website of the Income Tax Department. Download the ITR-V form the website.

Step 2. If you have downloaded the ITR-V form then you require a password to open it.

Password Format to Open ITR-V

The Password is your PAN Number in lower case letter along with the date of birth.

Example

PAN- AAAPA1111F

Date of Birth- 01/01/1982

Password- aaapa1111f01011982

After receiving the ITR-V (acknowledgment) you need to send it to the CPC, Bangalore within a time period of 120 days of e-filling your income-tax return.

ITR-V Form

An ITR-V form is called Income Tax Return- Verification form.  It is basically a one-page document. It is received only when you file your IT Return Online without using a digital signature. This document is sent by the IT Department. Then the IT Department verifies the authenticity of your e-filing which does not have your digital signature. On the receipt of a form of ITR-V, you need to sign the copy of the form in blue ink.

Step-3. Send the form to the following address

Address of CPC Bangalore, for Speed Post:

Post Bag No. 1

Electronic City Post Office

Bengaluru 560500

This will take a period of 3-4 days to receive the documents. After receiving the documents, the CPC Bangalore sends an email acknowledgment on the receipt of ITR-V. It takes a minimum of 4-5 days.

You can check your status on the https://incometaxindiaefiling.gov.in/

if your ITR-V has not been marked as received after 10 years you can call on the Government Helpline Number 1800 4250 0025 / +91 80 2650 0025 from 9 am- 8 pm.

Check Income Tax Refund Status Online in 5 minutes

An Income Tax Refund is a refund which is issued to the taxpayer by the Income Tax Authorities when his tax liability is less than the actual taxes he/she paid. The Income Tax Department offers an online facility to check the Income Tax Refund Status.

The taxpayers can see their Income Tax Refund Status after 10 days the refund has been sent. You just need your PAN Number and then select the desired Assessment Year for which you want to check.

Check Income Tax Refund Status

Income Tax Refund Status
Income Tax Refund Status
  • Login using the details: PAN, Password, Date of Birth and Captcha Code.

Income Tax Refund Status

  • Go to “My Account” and click on “View Returns/Forms”.

Income Tax Refund Status

  • Select the “Income Tax Returns” and choose the relevant assessment year for which you want to check the refund status.
  • Click on the acknowledgement number which is a hyperlink.
  • A pop-up appears on the screen which displays the timeline of the filling of return activities. This includes the date and time when your ITR was filed and verified, date of completion and processing, date of issue and refund etc.
  • It will also show the details of the assessment year, status, reason for failure, mode of payment.

Eligibility for Income Tax Refund

The different criteria’s for the eligibility of the Income Tax Refund is as follows:

  • If the taxpayer has paid more tax as the self-assessment but should have paid less for the regular assessment.
  • If the TDS deducted by the bank or the employer of the taxpayer is more than the latter’s tax liability through a regular assessment.
  • If the same income of a taxpayer has been taxed in a foreign country (with which the Government of India has an agreement to avoid double taxation) and in India as well.
  • If the taxpayers have not declared some of the investments which provided the tax benefits to him.

FAQs

  1. What if you have e-Filed an Income Tax Return but have not received the refund yet?

If you haven’t received your refund to date, then there could be three possible reasons:

  • Your Income Tax has not been processed yet.
  • Your Income Tax Return has been processed but the Income Tax Department has determined no refund.
  • Your Income Tax Return has been processed and a refund has been determined but the Cheque/ECS credit could not reach you.
  1. What if you have checked the status of the IT Return and it is displayed as “Refund Returned”. How can we apply it again?

Visit the official e-filling website and go to “My Account” section. From the drop-down menu of “My Account” select “Refund Re-Issue Request”. Select the mode of re-receiving the refund. ECS or Cheque. Provide the bank account number, if in case you have changed and provide the address details.

This same process goes for all the other cases such as the following:

  • If in case your Bank Account Number has changed and you want to change the bank account number.
  • If in case you have changed your address.

Income Tax Slab | Impact Of 2018 Budget On Tax

India has witnessed its first post GST (Goods and Service Tax) budget; Budget 2018. The budget this year was highly disappointing for people as there is no change has been introduced in the tax slabs. It has in turn raised the liability of citizens except some categories such as senior citizens. The senior citizen tax has come down by almost Rs. 15, 450 due to the tax exemption for up to Rs. 50, 000 interest earned from bank deposits and Post Office Schemes.

Other than few of these exceptions, the budget has hiked the percentage on tax from 3 % to 4 % for all tax payers. According to this, a tax payer who earns 60 lakh in a year will pay Rs. 13,354 more in tax and on the other hand a high – income tax payer who earns nearly 1.2 crore will pay 33,868 more.

On this matter, one of the dealers said that

Rich taxpayers who were expecting some relief in surcharge are disappointed. They will pay more tax next year.

However, in the budget, Arun Jaitley has announced that standard deduction of Rs. 40,000 will be granted for salaried individuals.

Let us look at the below mentioned chart to see the impact of budget 2018 on tax:

  1. Retired Pensioner

Income 9 Lakh

Deductions

Sec 80 C 1.5 lakh
Medical Insurance 30,000
Existing Tax 55,620
After Budget 41,600

Savings In Tax – 14,020

  1. Low – Income Earner – Negligible Tax Cut, Gross Income – Rs. 6 lakh

Deductions

Sec 80 C 1.5 lakh
NPS Contribution 50,000
Medical Insurance 15,000
Existing Tax 6,953
After Budget 6,718

Savings In Tax – 234

  1. Mid Income with Home Loan, Gross Income – Rs. 12 lakh

Deductions

Sec 80 C 1.5 lakh
NPS Contribution 50,000
Medical Insurance 20,000
Home Loan 2 lakh
Existing Tax 70,555
After Budget 70,033

Savings In Tax – 521

  1. High Income Earner, Gross Income – Rs. 60 lakh

Deductions

Sec 80 C 1.5 lakh
NPS Contribution 3.5 lakh
Medical Insurance 25,000
Home Loan 2 lakh
Existing Tax 15.81 lakh
After Budget 15.93 lakh

Additional Tax Payable – 13,354

  1. Very High Income Earner, Gross Income – Rs. 1.2 Crore

Deductions

Sec 80 C 1.5 lakh
NPS Contribution 5.5 lakh
Medical Insurance 55,000
Home Loan 2 lakh
Existing Tax 37.02 lakh
After Budget 37.36 lakh
Additional Tax Payable – 33,868