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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:-



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.



TAXATION STRUCTURE -Corporate-income-tax in India
TAXATION STRUCTURE-Corporate-income-tax in India

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


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 24th 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.



 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  1st 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


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).



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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I am Ajay Kumar Patra. ( & MBA-Finance) with 27years of Accounts & Taxation Experience in Large Manufacturing Units in India. In 2021 I started my own tax consultancy firm called “Ajay Tax consultant”. I started my Digital marketing on my website "".I have already published more than 100 Blogs on Business, Finance, startups, Digital marketing & Tours & Travel for my viewers.

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