What is Tax? What are its types ?
Tax is the price we pay for the civilized society. The government has the mechanism to collect tax and utilises the funds for various purposes. Broadly, taxes have been classified as Direct Taxes and Indirect Taxes. Direct Tax is a tax where tax is paid directly by the person e.g. Income Tax, Wealth Tax etc. whereas Indirect Tax is a tax where the tax is paid indirectly e.g. excise Duty, Custom Duty, Service Tax, VAT etc.
Income Tax ?
Income tax is an annual tax on taxable income of a person. Income of a person is computed in five heads. These are:
- Income from House Property
- Profit & Gains of Business or Profession
- Capital Gains
- Income from other Sources
There are various deductions and exemptions available for the computation of income and tax liability. E.g. Investments in PPF, Certain Mutual Funds, Payment of Insurance Premiums are deducted from income of an Individual & HUF under Section 80 C. The provisions of computation of income, deductions, exemptions etc. are specified in the Income Tax Act, 1961. Tax is computed in different Slabs. These slabs are given in the Finance Act of every year. The presentation of proposed slabs and other taxation provisions in the parliament is known as Budget of a year.
Valued Added Tax, short formed as VAT is the simple and transparent system of taxation. India has adopted VAT in 90s. Avoidance of double taxation and increase in tax base; these are two major benefits of VAT. India has adopted State Level Vat in Sales Taxation where credit is given for Vat Paid on Purchases while Paying Tax collected on Sales. Vat is collected at every step in the Production & Supply Chain.
Excise Duty ?
Excise is duty on excisable goods manufactured or produced in India. The excise duty contributes a very large portion of the total tax collection of any nation. The goods are classified in different heads & subheads and valued for assessment by following specified valuation rules.
Custom Duty ?
Custom duty is duty on imports into and export out of India. There are various types of custom duties e.g. Basic Custom Duty, Special Custom Duty, Additional Custom Duty, Anti Dumping Duty, Safeguard Duty etc.
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