Direct Tax

Direct tax levied on a person’s wealth and income and paid directly by people or an organization to the Government of India. But both the person or organization cannot transfer this type of tax to any other person or entity for payment. Some of the examples of direct tax include income tax and wealth tax.

The various types of direct taxes levied on the citizens by the Government of India are discussed as follows:

1) Corporate Tax

As per the Income Tax Act, 1961, both Foreign and Indian organizations are liable to pay taxes to the government. The Corporate Tax is levied on the profit of domestic firms and different from the shareholders. Foreign corporations whose profits deemed or appear in India are also liable to pay taxes to the Government of India. The income of the company be it in the form of interest, dividends, royalties are taxable.

Corporate tax also includes the following:

Minimum Alternative Tax (MAT): The MAT is imposed by the Government on Zero Tax companies. The accounts of these companies are made as per the Companies Act.

Fringe Benefits Tax (FBT): The FBT tax is imposed on the fringe benefits like drivers and maids which is being provided by companies to their employees.

Dividend Distribution Tax (DDT): An amount that is declared, distributed or paid as a dividend to the shareholders by a domestic company is taxed under the Dividend Distribution Tax. It is applicable to domestic companies only; foreign companies are exempted from this tax rule.

Securities Transaction Tax (STT): The SST is imposed on the income which the companies get through taxable securities transactions. This tax is free of any surcharge.

2) Wealth Tax

Wealth tax is levied on the property owners. A person is required to pay tax, no matter is generating income or not. If you purchase the property, you are liable to pay wealth tax yearly to the government of India based on the current market value of the property. Based on residential status, Individuals, Corporate taxpayers, and Hindu Undivided family are liable to pay the wealth tax.

Working assets get an exemption from the wealth tax law. Some of the working assets are as follows:

  • Gold Deposit Bonds
  • Stock Holdings
  • Commercial Complex Properties
  • House property (rented for more than 300 days yearly)
  • House property owned for business or professional requirement
  • House property held for business or profession

3) Capital Gains Tax

Capital Assets are those assets which are owned for personal use or investment reasons. For businesses, a capital asset is anything that is being used for more than a year and it is not intended to be liquidated or sold during a course of business operation.

Example of Capital Assets are as follows:

  • Machinery
  • Car
  • Homes
  • Bonds
  • Art
  • Businesses
  • Farms

Capital gains tax imposed on the income derived from the sale of investments or assets. Based on the holding period, the categorization of tax takes place. There are two forms of capital gains tax- Short Term capital gain tax and long-term capital gains tax.

Capital Gains = Sale Value – Purchase Value

Only those capital assets are liable to be considered as short-term gains, which are sold within 3 years of acquisition. The exception to this rule is securities. The capital assets sold after being held for more than 3 years fall under long-term gains.

Online Payment procedure of Direct Taxes

It is mandate for all individuals to pay direct taxes. For some people it is mandated to use online mode of payment of direct tax:

All companies

All taxpayers other than companies who are liable to get their accounts audited as per section 44AB. One can visit the relevant government website and can pay taxes online.

Mentioned below are steps to pay direct taxes online.

Step1: Log on to official website of NSDL e-Governance

Step 2: Make selection of the relevant challan – ITNS 280, ITNS 281, ITNS 282 or ITNS 283, as per the payment criteria of direct taxes.

Step 3: Provide the PAN/TAN, as applicable.

Step 4: After checking online, the validity of PAN/TAN, you will be allowed to fill in other challan details

Advantages of Direct Tax

Step 5: Once getting confirmed with the challan details, you will be directed to the net-banking site for payment

Step 6: After the successful payment, a challan counterfoil will be issued as proof of payment.

Advantages of Direct Tax

Economic: The Income Tax that comes under the category of direct tax which is calculated annually and mostly deducted at the source (). For instance, if the tax is being deducted from an employee's salary month, it helps in saving a huge amount of the administrative cost as here employee acts as a deductee or tax collector. So, this procedure makes direct tax more economical as compared to other taxes where loads of administrative costs are involved.

Productive: Direct taxes are also productive. The revenue comes from direct tax is directly proportional to the changes taken place in the national wealth of the country. In simple words, an increase in the country's population and prosperity will also TDS result in consequently increase in return on Direct Tax.

Certain: In case of Direct Tax, taxpayers know about the amount of tax to be paid. On the other hand, tax authorities can also precisely estimate the revenue they can expect from a direct tax. There is no uncertainty on the tax amount both from the side of taxpayer and tax authorities. The good thing is that it helps in the elimination of corruption from the tax collection system.

Equitable: Direct tax is being levied based on the income of the taxpayer whose income is high, need to pay more taxes as compared to taxpayer with lesser income. Rich pay more tax than the poor. This applies to all sections of society. People who all are belonging to similar economic conditions are taxed under the same rate. The equitable trait of direct tax serves the purpose of quality and justice in all sections of society.

Progressive: Direct tax plays a major role in the reduction of the gap of financial inequalities across the country. These taxes are progressive as the government imposes taxes as per the income. The money collected from these taxes helps in the implementation of rules and policies for the uplifting of the poor in society. It helps in achieving the aim of making society an economical society.

Anti-inflationary: Direct taxes can be used as an anti-inflationary tool for stabilizing the price level in the market. It can be used for controlling the use and demand of the products. An increase in demand for products and services at the time of inflation can be decreased by increasing the direct tax. It will result in forcing people at large to spend less money to purchase the product and services, thus reduces the demand and consequently the inflation rate.