Brief Summary of the Indian Taxation structure for 2022

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A brief summary of the Indian Taxation Structures

Taxation is the means by which a government or the taxing authority imposes or levies a tax on its citizens and business entities. From Income Tax to Goods and Service Tax (GST), taxation applies to all levels.

What is Taxation:-The Central and State Government plays a significant role in determining the taxes in India. To streamline the process of taxation and ensure transparency in the country, the state and central governments have undertaken various policy reforms over the last few years.

One of the biggest changes in the history of In Goods andService Tax. This puts the tax regime on sale and deliverance of goods and services in the country.

The tax structure in India can be classified into two main categories:-

(A) DIRECT TAX: -

Direct Tax is defined as the tax imposed directly on a taxpayer and is required to be paid to the government. A tax payer refers to a person who is subject to the tax laws of a country .The person may be an individual or an entity who is governed by the tax laws of a country.

Some of the Direct taxes imposed on an Indian taxpayer are:-

Income Tax:-

The Income Tax, Act 1961 of came into existence w.e.f 1-4-1962.Revenue Audit introduced for the first time in the Department.New system for evaluation of work done by Income Tax officers introduced.

The present law of Income Tax is governed by Income Tax Act 1961. It has 298 sections and 14 schedules and it applies to the whole of India including Jammu & Kashmir state.

The Income Tax Department is the central government’s largest revenue generator, total tax revenue increased from Rs. 1392.26 billion in the year 1997-98, and now reaches Rs. 1,25,065 Crore in 2020-2021.

It is the tax applicable on the Income earned by an Individual or Taxpayer. Income Tax is a Tax you pay Directly on the Government basis of your Income or Profits .The money collected by the direct tax route is used by the Government for the Infrastructural developments and also to pay the employees of central and state Governments. The Income Tax Act was passed in the year of 1961.

Who should pay Income Tax in India:-

Any Indian Citizen aged below 60,is liable to pay Tax if the Income is exceeds2.5Lakh.If the individual is above 60 years of age and earns more than Rs.3 Lakh he/she will have to pay taxes to the Government of India.

Additionally, the following entities that generate income are liable to pay Direct Tax.1.Hindu Undivided Family(HUF)2.Body of Individual3.Association of Persons((AOP),Local Authorities, Corporate firms and Companies

There are five categories of Income that fall under the Income Tax Department.

1. Income from Salary:-If you are salaried income, your pension and salary fall in this category.

2. Income from Other sourses:-If you are earning from other sources, remunerations, fixed deposits, interest on saving account, etc.

3. Income from Rent: – If you have real estate or property, it falls into the category of rental Income.

4. Income from gaining Capital:- If you are gaining from capital investments, your earnings from selling these assets in the form of market shares, house property, and mutual funds shall fall into this category.

5. Income from Business:-If you are an entrepreneur or businessman, you fall into this category of self-employed individuals. Lawyers, doctors, and teachers are under this category.

The New Income Tax slab for the FY20-21 has revised the income tax slabs for different income groups. The income group up to Rs. 2.5 Lakhs is exempted from tax .There is 10% tax for those earning between Rs5 Lakhs and Rs7.5 Lakhs .15% tax will be levied on people earning between Rs.7.5Lakhs and Rs.10Lakhs in a financial year.20% and 25% tax is levied on the income group of Rs.10Lakhs to 12.5Lakhs and Rs 12.5 Laksh to Rsa.15 Lakhs.

CORPORATE TAX:-

This is the Tax applicable on the profits or revenuesearned by the Companies from their business.Companies both Private & Public which areregistered in India under the Companies Act, 1956, are liable to pay Tax (Corporate Tax).

Corporation Tax or Corporate Tax is a Direct Tax levied on the Net Income or Profit
of a corporate entity from their business, foreign or domestic. The rate at which the tax is imposed asper the provisions of the Income Tax Act, 1961 is known as the Corporate Tax
Rate. The corporate Tax rate is based on a slab rate system depending on the type of corporate entity and the different revenues earned by the each corporate entitie

BRIEF NOTE ABOUT CORPORATE TAXATION IN INDIA:-

Corporate Tax is levied on the Income earnedby the companies, whether they may be Domesticor may be Foreign. The Income Tax act, 1961 is liable for charging
corporate tax in INDIA. Worldwide Income of the companies registered in the country
is taxed under Corporate Tax.

As perSection22 (A).” Domestic company” means an IndianCompany , or any other company which, inrespect of its income liable to tax under this Act, has made
the prescribed arrangements for the declaration and payment , within India , of the
dividends on preference share payable out of such Incom

Domestic Company :-

A domestic company means an Indian Company or any other company with respect to its income , liable to tax under the Income Tax Act .All Indian company are treated as Domestic Company but all Domestic Company are not Indian Company.

What is Indian Company: -

Provided that the registered, as the case may be principal office of the company, corporations, institution, association or body in all cases is in India.

(A) Private Company:-

There are two types of Domestic Company as per Income Tax Act:-

A private company is a firm held under Private ownership. Private companies may issue stock and have shareholder , but their shares do not trade on public exchange and are not issued through an (IPO)Initial Public Offering. As a result, private firms do not meet the Securities and Exchange commission (SEC) strict filing requirements for Public Companies

Key points are:-1.A private company is a firm that private owned 2.Private Companies may issue stock have shareholders , but their shares do not trade on Public exchange and are not issued through an IPO.3.The high cost of an IPO is one of the reason companies choose to stay Private.

(B) Public Company:-

A Public company is a corporation wherein the ownership is dispensed to general public shareholders through the free trade of shares of stock over the counter at markets or an exchanges. Even though a minute percentage of shares are initially given to the Public , the daily trading which happens in the market will determine the worth of the entire company. It is termed as “public limeted companyas the shareholder, who became the equity owners of the firm, may composed of an individual who buys stock in the firm.

Public companies are traded publicly within an open market .Various investors buy shares .Mostly , public companies were initially Private companies who became public companies with all of the regulatory requirements.

Key Points are:-1.Public Companies issue shares via an IPO and trades on a minimum of one stock exchange.2.Mostly private firms, go public with an aim to raise capital.3.Many Public companies opt to go private for gaining more control over the firm and its decisions.

(c)Foreign Company:-

The term Foreign Company is clearly laid down under the Setion 2 sub section 42 of the Companies Act, 2013( New Act).A foreign Company is any company or body corporate incorporated outside India which,

1.Happens to have a place of business in India either physically , through any other agent or via electronic/digital means.

2. Business activities are conducted by the entity in any other manner.

To be considered a Foreign Company in India, the entity must fulfil the above mentioned criteria completely.

As per Press release on 24^th Sept, 2021, Govt. Of India –Income Tax Department -The figure of Direct Collection for the Financial Year 2021-22, as on 22-09-2021 show that net collection are at Rs.5,70,568 Crores compared to Rs. 3,27,174 Crore in the corresponding period of the Preceding Financial Year FY2020-2021, representing an increase of 74.4%.

The Net collection as on 22-9-2021 in FY (2021-22) has registered a growth of 27% over FY 2019-20 WHEN THE Net collection was Rs.4, 48,976Crore.

(B). INDIRECT TAX:-

It is defined as the tax levied not on the Income, Profits or revenue but the goods
and services rendered by the taxpayer. Unlike the direct taxes can be shifted from one
individual to another .Earlier ,the list of indirect taxes imposed on taxpayers included service tax , sales tax , value addedtax(VAT),entry Tax, service Tax, Central excise Duty and custom duty .entertainment tax, customduty etc.

However, after implementation of GST regime on 1^st July, 2017, it has replaced all forms of indirect taximposed on Goods and Services by thestate and central Government.

GST has not onlybeen reduced the physical interface but also lower the cost of compliance with theunification of Indirect Taxes

Indirect Taxes Covered:-

Most of the important indirect taxes of the center and states are integrated under the GST. The most important tax of the Central government ( in terms of tax revenue collection), the central Value Added Tax (or Union Excise Duty), Additional Custom Duty (CVD), Special Additional Duty of the customers (SAD), Central Sales Tax(CST) by the Centre and collected by the State, the fastest growing tax revenue of the centre-Service Tax , the most important tax revenue of the states(VAT).All are now merged with the single Tax under the Goods and Service Tax.

The following taxes levied and collected by the Centre and merged with the GST:-

1. Union Excise Duty

2. Service Tax

3. State –VAT

4. Central Sales Tax

5. Entertainment Tax

6. Entry Tax

7. Luxury Tax

8. Taxes of Advertimesement

9. Taxes of Lotteries, betting and gambling.

10. State charges Surcharge etc.

The achievement of GST reforms is the unification of the numerous taxes into the single GST.

The Four Tier rate Structure in the GST:-

The GST proposes a four tier rate structure .The tax slabs are fixed at 5%, 12%,18% and 28% besides the 0% tax on essentials.

Services tax rate under GST:-

.Under the GST, there is a differential tax structure. A low tax rate of 5% is imposed on essential services .Common services are charged at 12% and some commercial services at 18%.A tax rate of 28% on luxury services is also made. Several services like education provided by an educational institution, post offices, RBI etc are exempted from services of Taxation.

Turnover Limit for Registration of GST:-

A business whose aggregate turnover in a financial year exceeds of Rs20 Lakh or (40 Lakhs for supply of goods has to mandatory register under the Goods and Service Tax. This limit is set at Rs.10 Lakh for North Eastern hilly states as a special category states

Types of GST:-

There are 4 types of GST in India. SGST ( State Goods and Services Tax), CGST(Central Goods and Services Tax)IGST ( Integrated Goods and Service Tax)UGST( Union Territory Goods and Service Tax).

CGST & SGST: – are levied on the Intra state transactions. CGST is collected by the Centre.SGST collected by the State.

IGST:–IGST is charged in the interstate goods / services transactions.

Composite Scheme of GST:-

The composition levy is an alternative method of levy of tax designed for small taxpayers with turnover is up to Rs.75 Lakhs. The schemecan be availed by manufacturers and restaurants.Other service providers cannot opt for this scheme. It enables taxpayers to make payments at a flat rateunder the GST.

Eligible personsopting to pay tax under this scheme can pay tax at a prescribed percentage ofthe turnover every quarter. Instead of paying tax at normal rate the GST rate
under the composition scheme is 1% for the manufacturer, 2.5% for therestaurant sector, 0.5% for other supplies of turnover

GST COLLECTION IN INDIA:-

In the Financial Year 2020-21, fiscal the
et GST collection was over Rs.5.48lakh crore, which was more than
revised estimates (RE) of Rs. 5.15Lakh Crore.InFY2019-20,the
net collection was over Rs.5.98 Lakh Crore, which is 97.8% of (RE).

FAQ:-

Question-1: Who is the Father of GST?

Answer-1: To create a GST model in India, Atal Bihari Vajpayee formed a group under the leadership of the West Bengal’s Asim Das Gupta, the state finance minister of India. GST was ultimately implemented in 2017.Therefore, the father of GST is Atal Bihari Vajpayee.

Question-2: Which country first start GST in the World?

Answer-2: France was the first country in the world , who implemented Goods and service tax (GST).Presently more than 140 countries have implemented GST all over the world.

Question-3:-What type of tax is GST?

Answer-3: GST is the Indirect Tax for the whole nation. which will make India unified common market. GST is the only tax on the supply of goods and services, right from the manufacturer to the consumer.

Question-4:- How much Income Tax is free in India?

Answer-4:- If your Income is below 2.5Lacs, you do not have to file an Income Tax return (ITR) in India.

Question5-: Which country is tax free all over the World?

Answer5:- Bermuda, Monaco, The Bahamas and the United Arab Emirates (UAE) are four countries in the world, they do not have Income Tax.

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Brief summary of the Indian Taxation Structures

ByAJAY PATRA