Types of Taxes & Tax Structure in India

As per the Indian tax system, direct taxes in India are the ones that are directly levied on an individual or taxpayer’s income. The Central Board of Direct Taxes (CBDT) overlook the direct taxes in India, and they cannot get transferred to any other individual or legal entity.

What are the different types of Direct Taxes in India?

The following are the types of direct taxes in India, as defined under the Indian tax system:

1. Income tax

The tax that gets levied on the annual income or the profits of an individual or an entity is Income Tax. Therefore, the Indian tax system recognises both salaried and self-employed individuals who are earning an income, to be liable to pay income tax. Also, there is also a tax exemption limit of up to Rs.2.5 lakh per annum under the Indian tax system, given to individuals below 60 years of age.

Similarly, the Indian tax system provides a tax exemption limit of up to Rs.3 lakh for individuals of the age of 60 or above but less than 80. The limit is Rs.5 lakh for individuals of the age of 80 or above. The tax slabs differ with income.

Also Read: Income Tax Slab Rates & Deductions

Taxes that get imposed on products and services when they are bought and sold are called indirect taxes in India. The sellers of the service or products collect these taxes under the Indian tax system. The tax gets levied as an addition to the original price of the product or service, which increases their cost. Following are the different types of indirect taxes in India.

Goods and Services Tax

Goods or Services Tax (GST) is a consumption tax imposed on services and goods supply and has completely replaced the indirect taxes in India. The Indian tax system stipulates that every stage of the goods production process and value-added services is under the obligation to pay GST.

The introduction of GST under the Indian tax system has resulted in the abolition of other kinds of indirect taxes in India and charges like Value Added Tax (VAT), OCTROI, Central Value Added Tax (CENVAT), and also custom and excise taxes.

As per the Indian tax system, an exemption is given to the products or services such as electricity, alcoholic drinks, and petroleum products that do not get taxed under GST. This tax is imposed according to the previous tax regime decided by the different state governments.

Paying income tax might be a compulsion as per the Indian tax system but is hugely beneficial for individuals who earn taxable salaries (especially the one that surpasses the necessary exemption limit) and file their income tax returns.

As per the Indian tax system, in case the tax liability is zero after deductions, the case remains the same. Also, if your income is lesser than the basic exemption limit, there are many benefits to filing taxes defined under the Indian tax system. Here are some of the advantages of paying your taxes on time:

• Faster Loan Approval

Major banks request a copy of your income tax returns when you apply for a loan, be it a home loan or a vehicle loan. As per directives defined under the Indian tax system, the income tax returns filed for the previous 2-3 years can help get a higher loan amount. The reason behind asking for ITR files is to calculate an individual's ability to repay the loan based on his income.

• Faster Visa Processing

During Visa Interviews, most foreign embassies necessitate the provision of income tax returns for the previous years. The UK, US, Europe, and Canada consulates consider it as a mandate, while the South East Asian countries and the Middle East do not always ask for ITR files. As per the Indian tax system, these ITR files act as evidence that you are not exiting the country to avoid taxes.

As per the directives of the Indian tax system, it is prudent to carry your ITR file receipts with you while you are travelling abroad, be it for work or leisure as it comes in handy in cases of emergency, and you need to seek the help of the embassy.

• Income Proof for The Self-Employed

According to the directives of the Indian tax system, Form 16 is not available for individuals who are freelancers, consultants, businesspersons, and partners of companies. If the yearly income exceeds the basic exemption limit as defined under the Indian tax system, then ITR file receipts can be provided as an income proof. Also, ITR receipts are useful during any financial or business transaction as sanctioned under the Indian tax system.

• Easier Refund Claims

The only way one can claim any refunds due from the Income Tax Department, as defined under the Indian tax system, is when the ITR has been filed. Even if the income is under the tax exemption bracket, the Indian tax system says that there could be refunds from various savings tools that can be claimed this way.