Types of Taxes
Direct Taxes
- A direct tax is one that is levied directly on the taxpayer and paid directly to the government by those who are subjected to it. The Central Board of Direct Taxes is responsible for levying and collecting direct taxes as well as formulating other direct tax policies.
-
Income Tax:
- The individual income tax (or personal income tax) is a tax levied on the wages, salaries, dividends, interest, and other income a person earns throughout the year, generally imposed by the state in which the income is earned.
-
Corporation Tax:
- It is a tax placed on the profits of corporations and business firms. It is also called Corporate tax.
- Companies that are registered in India under the Companies Act 1956, both public and private, are subject to pay corporate tax.
-
Minimum Alternate Tax (MAT):
- Minimum Alternate Tax (MAT) was introduced to ensure that companies with significant profits and large shareholder dividends, but paying little to no corporate tax due to various exemptions and incentives under the Income-tax Act, contribute a fixed percentage of their book profits as tax.
-
Capital Gain Tax:
- Capital Gains Tax is levied on the profit earned from the sale of capital assets, such as property, stocks, bonds, and mutual funds. It applies when the selling price exceeds the purchase price of the asset.
- Types-
- Short-term capital asset — A short-term capital asset is an asset that is held for less than 36 months.
- Long-term capital asset — A long-term capital asset is one that has been held for more than 36 months.
-
Securities Transaction Tax:
- Securities transaction tax is a tax on gains made on the domestic stock exchange on securities such as equities, options, and futures.
- It is a direct tax levied and collected by the central government.
-
Commodities Transaction Tax:
- The commodity transaction tax is charged on the buyer and seller of exchange-traded non-agricultural commodity derivatives in India.
- It is calculated based on the contract’s size.
- Non-farm items such as metals (gold, silver, and copper) and energy products are among the commodities covered by CTT (crude oil and natural gas).
-
Minimum Alternate Tax:
- MAT or Minimum Alternate Tax is a provision in Direct tax laws to limit tax exemptions availed by companies, so that they pay at least a minimum amount of corporate tax to the government.
-
Indirect Taxes
- Incidence and impact of taxation does not fall on the same entity. Taxes that can be shifted from one individual to another like sales tax, entertainment tax, excise duty.
- Example – Customs Duty, Sales Tax
Other Taxes
-
Angel Tax:
- It is levied on the capital raised via the issue of shares by unlisted companies from an Indian investor if the share price of issued shares is seen in excess of the fair market value of the company.
- The excess funds raised at prices above fair value is treated as income, on which tax is levied.
- It derives its genesis from section 56(2)(viib) of the Income Tax Act, 1961.
- It was introduced in 2012 to prevent black money laundering through share sales.
- The Angel Tax is levied at a rate of 30.9% on net investments in excess of the fair market value.