Tax

Definition: Tax refers to a mandatory financial contribution to the country’s revenue, imposed by the government on the income of people, business profits, activities or included in the cost of goods, services or transactions.

The taxes are the primary source of government revenue, which is used to finance government expenditure on the provision of education, health care, public utility services, development activities like construction of roads, dams, canals, highways, expressways, etc.

Types of Taxes
tax

  1. Direct Taxes: When the tax is imposed on the income, wealth or property of a person and its burden cannot be shifted on others, it is called as Direct Tax. It is a charge levied straightforwardly on the taxpayer and paid to the relevant authority.
    • Income Tax: As its name suggests, income tax refers to the tax imposed on the assessee’s total income of the previous year by the Central Government. It has to be calculated at stipulated rates on the personal income of a person.

      The assessee can be Individual, HUF, Partnership firm, Company, Body of Individuals, Association of Persons, etc.

    • Wealth Tax: Tax levied on the wealth or to be more specific ‘personal assets’ of an individual, Hindu Undivided Family (HUF) and Companies is called Wealth Tax.

      Basically, it is levied on the affluent section of the country, to make sure that there is parity among taxpayers. Its applicability is decided on the basis of residential status, wherein the tax is levied on the global assets of the resident Indians. As against, Non-Resident Indians (NRIs) are charged on the assets held in India.

  2. Indirect Taxes: Indirect tax is one that is added in the cost of product or service, so that the person paying the taxes, can shift the burden or incidence to another person. In this tax, the taxpayer acts as a link and the incidence of tax passes from one taxpayer to another until it reaches the end-user, i.e. consumer. This means that the taxpayer bears the final consumer, who consumes it.
    • GST: GST stands for Goods and Services Tax, which is a multistage, destination-based tax, introduced in India recently to subsume many indirect taxes levied in the country. It is imposed on value addition made at each stage, on the supply of goods and services.

      However, the immediate liability to pay the tax falls on the producer or service provider, but a continuous chain of tax credits is available for the tax already paid on the goods at the previous stage.

    • Custom Duty: A tax exacted on the products when the transport is conducted across international boundaries, i.e. it is levied on the import (goods brought into the country from abroad for sale) and export (goods sent outside the country for sale).

      The primary reason behind imposing custom duty is to increase the country’s revenue and promote domestic products over foreign ones.

In a nutshell, tax is the money which a person has to pay to the Central or State Government, as an enforced contribution imposed in accordance with the law.

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