No matter you are living anywhere in the world, everyone is liable to pay taxes to the Local Government. There are various forms of taxes applicable such as State Taxes, Central Government Taxes, Direct taxes, Indirect taxes and so on. 

Concept of Tax

Tax originates from the Latin Word ‘’ Taxo’’. Tax is a compulsory fee or a financial charge which is being levied by the government on an individual. Fund which is being collected by the Government in the form of taxes are used in the funding of different public expenditure programs. If anyone fails in making payment of taxes, resisting to contribute towards it, will invite punishment under pre-defined law.

Forms of Taxes

Direct Tax: The simple definition of Direct Tax derived from the name. It is a tax which is paid directly by the taxpayer of the government. The most common form of taxes are Wealth Tax and Income Tax. From the Government perspective, estimating tax earning from Direct tax is easier as it relates to direct correlation of income or wealth of the registered taxpayers.

Indirect Tax: It includes Sales Tax, Goods and Services Tax (GST), Value Added Tax (VAT), etc.

  • They are the consumption-based taxes that are applied to goods or services at the time of making sale or purchase
  • The Government receives Indirect tax payment from the person who sells goods and services.
  • The seller passes the tax to the end-user who is the buyer of goods and services.
  • End-user of Goods and Services do not pay taxes directly to the government.

Benefits of paying tax

Tax is basically a fuel on which Government functions and provide public services to the citizen of the country. Some of the benefits of paying taxes are:

  • If one makes timely payment of taxes, it will help in smooth functioning of the government services for all the citizens of the country.
  • By paying taxes, it becomes easier for an individual to file an application for a credit card or a loan.
  • By making use of the tax fund, Government will offer better civic amenities and utilities which will result into improving of Standard of living.
  • Tax funds utilized by the government for various reasons such as military funding, infrastructure development, ensuring safety of citizen and administrative services etc.

Recent changes taken place in the Tax

The Government recently introduces a new form of tax that is known as Goods and Services Tax (GST) in 2017. It is the most important tax reform till date. Previously, the Indian Government levied various Central and State Taxes for availing various services and buying different goods. But there were many loopholes in the system. After GST came into existence, a high number of assessee brought under taxation umbrella who always finds its way to avoid paying taxes.

Tax Evasion Laws and Penalty

Forms of Section or taxation of laws and penalties imposed on non- compliance:

  • As per section 140A (1), if an assessee fails to pay taxes, partially or wholly, on principle amount of interest, he will be considered as a defaulter.
  • Section 221 (1) The Assessing officer can impose a penalty amount equal to the arrear as per section 221 (1)
  • Section 271 (C) In case an assessee conceals the income or earning, a fine of 100% to 300% can be imposed on the defaulter under section 271 (C).
  • Section 142 (1) or 143 (2 If a defaulter does not respond to a tax notice under section 142 (1) or 143 (2), the Assessing officer can ask the assessee to file the return or furnish all details of assets and liabilities in written.

Income Tax

It is the most common form of tax paid by an individual citizen to the government. It means a portion of income paid by an individual to the government every year and the government used this money for growth and development activities across the country.

In 2015-16, the total income tax being collected by the government is Rs 2.86 Lakh Crores which is approximately 39% of total tax collected by the Government from all the available routes which are both direct and indirect.

Income Tax Assessee

Any individual who is liable to file taxes as a result of getting an income is an Income Tax Assessee. Not every person who is earning an income needs to be required to pay tax. All those, whose annual income is below a threshold level determined by the government from time to time or income-earning from sources such as agriculture are exempted from paying taxes.

Forms of Internet Assessee are:

Normal Assessee: Normal Assessee is an individual who is liable to pay tax on income earned by him or her for a particular financial year. Everyone who paid taxes in preceding years against the income earned or losses incurred by him is liable to make payment to the government in the form of taxes or penalty or anybody who is entitled to get tax refund under IT Act is an Assessee. All these individuals grouped under Normal Assessee.

Representative Assessee:

Many times, individuals liable to pay taxes for income earned or losses incurred not only by him but also for income or losses incurred by a third party. Such individuals are considered as Representative Assessee. Representative assessee used by those individuals who are not able to file and pay their taxes on their own it includes NRIs, lunatics or minor. Representative Assessee can be agents or guardians.

Deemed Assessee

  • Deemed Assessee is an individual who put in a position to pay taxes for some other person by the legal authorities.
  • The executor who is a legal heir of the property of a deceased person, by written passed on the property to the executor is considered as Deemed Assessee.
  • The eldest son or any other legal heir of a deceased individual (who has expired without writing his will) is treated as a Deemed Assessee.
  • The guardian of a minor, a lunatic or an idiot is treated as a Deemed Assessee.
  • The agent of a Non-Resident Indian (having Income Sources in India) is treated as a deemed Assessee.

Assessee in Default

Default Assessee is who fails to fulfill the legal duty of paying taxes to the Government. Employer is considered default assessee who fails to submit TDS deducted by him from employees to submit the Government. An employer is supposed to disburse salary to employees after TDS deduction.

Role, Responsibilities and duties of an assessee:

  • Assessee must make sure to file tax returns for the income earned or losses incurred for a particular year as soon as get a notice issued by an Income Tax officer to him.
  • If the assessee feels that the reason being provided in copy is not valid, he or she in that case can file an object and challenge the notice and its validity.
  • The assessee should make sure that reason should be right to file objection. He or she should be confident enough to raise questions on the notice issued by government.
  • The Assessee can also put a request to the concerned Assessing officer and ask him to give other reasons, if claims made by the Assessee are dismissed by the officer.
  • With the support of writ petition filed in the High Court, Assessee may choose to challenge the legality of the notice before the competition of scheduled assessment or re-assessment.
  • It’s a mandate for assessee to furnish all details related to income returns within a period of 30 days from the date of issuance of notice. The details pertaining to the income for which tax payment has been avoided and other related income details must be clearly furnished and submitted to the concerned officer in order to avoid problems at a later stage.

Income Tax Slab for FY 2020-21

Budget 2020 has given an option to choose between the existing income tax regime and a new regime for the coming financial year 2020-21. 

The new tax regime offers lower tax rates and new tax slabs and simultaneously removes tax exemptions and will result in lower tax outgo for the taxpayer, according to the finance minister.

Tax applicable to individual taxpayers below 60 years of age

Total Annual Income Applicable rate of Income Tax
Rs 2.5 Lakh or less Tax Exempt
Rs 2.5 Lakh to 5 Lakh 5% on amount exceeding Rs 2.5 Lakh
Rs 5 Lakh to Rs 10 Lakh Rs 12500 + 10% on amount Exceeding Rs 5 Lakh
Over Rs 10 Lakh 12500+ 50,000+30% on amount Exceeding Rs 10 Lakh

New Tax Slab for Financial Year 2020-21 (optional)

Total IncomeSimplified, optional tax rates
Up to Rs 2.5 Lakh
From 250,001- Rs 500,000
Rs 500,001- Rs 750,000
From Rs 750,001- Rs 10,00,000
Rs 10,00,001 – Rs 12,50,000
Rs 12, 50,001 – Rs 1500,000
Above Rs 1500,000

Anyone whose Taxable income over Rs 2.5 Lakh is liable to pay Income Tax as per their application slab. Few tax saving options can be used to reduce the Income Tax payable by an individual. Examples of such deductible expenditures are Mutual Funds, EPF, PPF, TAX saver, Post office saving schemes, health insurance, and others. Most of these deductible expenditures are available under sections 80C and 80D of the Income Tax Act, 1961.

Tax Deducted at Source

TDS is deducted from the salary of an individual by employed. It is a part of the salary structure of an employee. In case if an investment declaration given by the employee being provided during a previous year or current year, then a TDS deduction will be done based on that. In case, investments declared after TDS deduction, then, in that case, excess deduction refunded to an employee at the time of filing Income Tax Returns.

Income Tax Refund

This is a situation when the taxpayer of the country makes an excessive payment of tax in the form of excess TDS deduction or wrong tax calculation. Income Tax refund will be given by the Income Tax Department of India when a taxpayer files Income Tax Return.

Income Tax Return

During the end of Financial Year, individuals whether self-employed or salaried are required to do the submission of Income Tax returns. This document provides a snapshot of the annual earning of the taxpayer. After ITR was being filed, the acknowledgment number was generated by the Income Tax Department for the reference of the Taxpayer. The Assessing Officer checks the accuracy of the ITR filed before issuing refunds.

Income Tax Notice

Receiving an Income Tax notice from the government is not a good sign, it is a clarification request regarding some aspect of the ITR. Previously, Income Tax notice sent by using a postal system, but with the coming years, there is a change came in the system because of the concept of e-filing. Income Tax Department now sends an email to the taxpayer from which he or she files an Income Tax Return, if the Income Tax Department does not get any response from the taxpayer even after sending multiple notices, then Income Tax Department will initiate criminal proceedings against the taxpayer or even put a fine against the taxpayer.

Goods and Services Tax (GST)

This tax is being implemented from July 2017. It is the greatest tax reform in India. It falls under the category of Indirect Tax. GST came into existence to provide uniformity to taxes levied on products and services across India. GST is the replacement of all taxes levied by the Central and State governments. As per the data, Goods and Services will be taxed on specific rates which include 0%, 5%, 12%, 18% or 28%, while a few other goods/services have been classified as exempt.

Valued Added Tax (VAT)

This is one of the leading Indirect tax which was a part of the pre-GST era. It is one of the most common taxes all over the world. The VAT is applied when anyone is making value addition to inputs or raw materials used to produced final products for sale. If any product which is being purchased and sold multiple times either as a raw material or semi-finished product till it is available in the form of the final product, in each downstream step provided, VAT will be applicable.

Sales Tax

Indirect Tax which is levied on the sale of goods and services. It is also part of tax during the period of Pre-GST. Both VAT and GST tax is an ad-valorem tax. It is computed based on the gross value of the sale.

This Sale Tax falls under the situation of double taxation. It is levied every time a good or service is being sold irrespective of any increase in value or not.

Service Tax

This tax is being introduced in India as a part of the Financial Act, 1994. Service Tax is an indirect tax payable to the government by a pre-determined group of service providers. These service providers pass on the tax on their customers. Service Tax is being charged to hotels, restaurants, mobile connections, etc.

Entry Tax

Tax is being implemented at the time of making goods moved from one state to another by recipient State. This tax is implemented on dealers, companies, firms, societies, industrial or commercial undertaking. Entry Tax has now been subsumed into GST as per the current arrangement.

Infrastructure Cess

It is being levied by the Central Government on goods specified in the 11th schedule. Vehicles such as small petrol, LPG, CNG cars attract a Cess of 1 %, whereas small diesel cars attract a Cess of 2.5% and SUVs and High Engine capacity vehicles attract a Cess of 4%. The concept of Cess was being introduced in March 2016 to finance infrastructure products in the country. Now Cess is also a part of GST.

Krishi Kalyan Cess

It is being introduced in the year 2016 following the provision of Chapter VI of the Finance Act, 2015. The Cess applies to all taxable services at a rate of 0.5% of the amount. Krishi Kalyan Cess aims to improvise the condition of farmers and offer them other services related to infrastructure. Krishi Kalyan Cess is also a part of GST.

Swachh Bharat Cess

This tax is levied at the rate of 0.5 percent on all the taxable services. This fund is collected directly in the form of the consolidated fund of India. The aim of levying this tax is to use the collected fund for financial activities related to the Swachh Bharat initiative and in promoting cleanliness in the country. It is also a part of GST.

Road Tax

This tax is by the State Government on the wheeled vehicles use on public roads. State Government where the vehicle is bought is responsible for Road Tax collection. This tax is one time, in case it is a private vehicle and must be paid on an annual basis for all commercial vehicles. Road tax calculation is done on various factors such as Engine Capacity, seating capacity, cost price, unladen weight, etc. The Government charges GST at the rate of 28 percent and additional Cess based on engine capacity which ranges from 1 to 15%. Electric cars have a lower tax of 12 percent.

Toll Tax

It is imposed by the authorities for making travel on a specific stretch of highway. The rate of toll tax is different for different toll Plaza. As a specific Toll Plaza maintains a certain part of Highway only. Every year, toll rates for toll plazas get revised according to policies mentioned in the National Highway fee under Determination of Rates and Collection rules, 2008. VIPs and dignitaries being exempted from the Toll Tax.

Education Cess

It is levied on the basic Tax amount of the assessee. This tax collection aims to improvise the educational infrastructure in the country. Both corporate and individual education Cess is 2%. In the year 2008, the Government levied an additional tax of 1% to finance secondary and higher education. The Government has imposed a total Cess of 4 % on Income Tax in the name of Health and Education Cess of assessment year 2019-2020.

Stamp Duty

It is a kind of tax collected by the government under Section 3 of the Indian Stamp Act, 1899. It must be paid on time as making a delay in payment invites penalty which ranges from 2 percent to 200 percent of the deficit amount. Generally, a purchaser must pay the stamp duty. In case the property is joint, stamp duty will be divided between both parties.

Entertainment Tax

his tax is levied on entertainment activities such as theatres, amusement parks, movies, private festivals, etc. It all clubbed under entertainment tax. The rate of entertainment tax is different for different states. Entertainment covered under list 2 of the constitution of India that gives a state to have full authority over such tax.

Now under GST, 28% of tax is levied on movies, amusement parks, etc. and 18% levied on theatre, drama, circus and Indian classical shows.

Property Tax

The tax is being collected on projects related to real estate along with the land levied by the government is known as the property tax. The local government imposes the tax on the present owner of the house. The rate of property tax is different for different states and the collection of tax is a responsibility of Municipal authority. Another factor which decides the rate of property tax is its use which is either for industrial purpose or domestic purpose.

Professional Tax

It is levied on all types of employment, professions, freelancers, employment and trade on employees in case the income of an individual exceeds a prescribed limit. State Government is liable for this tax. As per the Income Tax Act, 1961, it can be deducted from the taxable income. The commercial tax department will do a collection of this tax and transfer the amount into an account of Local Municipal Body. Tax is applicable even after implementing GST. The maximum cap is limited to Rs 2500.

Interest Tax

This tax is levied on interest accrued as per the Interest Tax Act 1974. It is applicable for all scheduled banks except Co-operative Societies. This act was discontinued due to chargeable interest earned after March 31, 2000.

Expenditure Tax

The expenditure tax is levied on charges incurred by an individual in case it is a chargeable expenditure. It was implemented as per the Expenditure Tax Act, 1987. It is applicable in all states and union territories except Jammu and Kashmir. The tax applicable is 10 – 15% of the total charges incurred.

Gift Tax

Any gift received by a person taxed for recipient under “Income from other sources’’.

  • Gift Tax is mentioned under Section 56(2) (x) of the Income Tax Act, 1961.
  • Gifts amounting to less than ₹ 50,000 in a year are exempted from taxation.
  • Gifts and money received in marriages are exempted from tax
  • Entire sum of money received in addition to ₹ 50,000 without consideration is taxed at 100%.

Excise Duty

Central Excise duty is an indirect form of tax levied under the Central Excise Tariff Act, 1985. It is charged on goods manufactured in India for domestic consumption. Tax is being paid after the production of goods takes place and being sent to the market. Now it is a part of GST only.

Custom Duty

This tax is levied on import and export of goods which is known as Custom duty. This tax levied intending to regulate and control the exit and entry of goods. Custom Duty varies based on product and from time to time to protect the domestic industry. Another factor on which customs duty depends on various international agreements under FTA or WTO etc.

Corporate Tax

It is the tax levied on the income of both domestic and foreign companies and is levied under the Income Tax Act, 1961. Corporate Tax is imposed on “net income” of a company registered under the Companies Act, 1956. Only the income earned in India is taxed under the corporate tax. The corporate tax rate for domestic companies is 30% and foreign companies are 40%. A surcharge is also levied on companies depending on their earnings and revenues.

Securities Transaction Tax: This Tax levied on the value of securities transacted through recognized Stock Exchanges which is known as Securities Transaction Tax. Responsibility of the collection of this tax is on Central Government. Products that are part of this tax are stocks, bonds, debentures, derivatives, equity, mutual funds, etc.

STT is not imposed on off-market transactions.

STT applicable on redemption of mutual funds or ETFs is 0.025%.

STT charged on sale of MFs or ETFs is 0.001% and is levied only on the seller.