All the taxes in India can primarily be divided into the following two types:
Direct Taxes: Direct taxes are those which are levied by the government on persons and property in the form of a tax. These can be either personal or corporate.
Indirect Taxes: Indirect taxes are levied by the government on goods or services produced or consumed within the country.
While the advantage of direct tax and indirect tax is known to many, very few people know about the different types of direct and indirect taxes. So let’s find out:
The most popular types of direct taxes include:
Fringe benefit tax
The fringe benefits tax is levied on the provision of certain services to employees by employers. It is imposed on the employer and not the employee, though it is deducted from the salary of the employee. The amount charged is computed as a percentage of salary and paid as an additional tax.
Minimum alternate tax
This tax is meant to ensure that people or companies with good incomes don’t evade paying taxes due to different types of exclusions. Minimum alternate tax is paid in accordance with section 115JB. As per its provisions, all domestic or foreign companies are required to pay a minimum amount of taxes if they have a substantial economic income despite different deductions and credits. MAT is levied under the income tax act of 1961. However, in the case of LLPs(Limited Liability Partnerships), a different version of MAT called Alternate Minimum Tax(AMT) is applied.
The most popular types of indirect taxes include:
Excise duty is a duty levied on the sale of goods, or their manufacture and distribution, for which the manufacturer, trader, or distributor is required to pay to the Government. This includes goods used in manufacture or sale, raw materials, and any other goods consumed during their production process. Excise duty is levied on every item that is purchased from a person in India and sold outside India.
Sales tax is a form of indirect taxation levied by the government on sales of goods and services within its territory to ensure that they do not result in double taxation. Sales tax is usually calculated as a percentage of the price charged for goods and services bought or earned within a state’s boundaries, but can also be based on location or type of transaction (e.g., retail). One of the biggest advantages of indirect tax is that it minimized tax evasion and sales tax is one of the biggest tools for that.
Service tax refers to an indirect tax levied by the central or state governments on activities that generate revenue for public services, such as health care facilities, education institutions, etc., but are not subject to income tax deductions under normal circumstances (such as private hospital bills).