Tax structure in India – a necessary but often puzzling part of individual’s life. Understanding the tax structure can be overwhelming to everyone, a salaried professional, a business owner, or someone just starting out. But fret not! This post will help you sort out India’s tax regime so that paying your taxes becomes less of a headache for you.
The Three Pillars of Tax
Tax structure in India follows a federal structure of taxation levied by three tiers.
- Central Government:
Imposes taxes on earnings like taxes on turnover for a non-farming income, company tax, and charges on items imported.
- State Governments:
Look after agricultural income tax, sales tax, state excise tax, professional tax, stamp duty, and land revenue tax.
- Local Bodies:
Helps in the collection of property taxes and other local taxes for regional infrastructural developments and amenities.
Understanding Direct vs. Indirect Taxes
Tax structures in India are broadly classified into two categories:
- Direct Taxes: These are levied on your income or on the property you own. It includes income tax, capital gains tax for profits from sales of assets, and wealth tax. These are taxes you directly remit to the government hence the name direct taxes.
- Indirect Taxes: These are taxes collected from the sales of goods and services and they are usually inclined in the price of the product. Some of the notable ones are the Goods and Services Tax (GST), excise duty and customs duty. You indirectly pay these taxes to the government when you purchase something.
Key Considerations for Taxpayers
- PAN Card: It is required to file income tax returns and for some other transactions. Make sure you have one before filing taxes!
- Tax Deducted at Source (TDS): TDS stands for Tax Deduction at Source – this is a procedure where tax is collected from the source of your income, for instance, your salary or interest earned. The TDS claimed for filing your tax return can be attributed to this tax.
- Tax Planning: Everyone knows we have to pay taxes, but there are various sophisticated ways to reduce our tax rate through legal deductions or investments. Consult a financial advisor to learn different ways of saving taxes.
Conclusion
Learning about the tax structure in India makes you become a better taxpayer and a wise individual in the financial dealings that you conduct. But please be advised that the government has dedicated departments that ensure they assist people with the filing of taxes apart from offering directions on the same. As always, it might be best to consult with a tax professional for a tailored opinion regarding one’s specific situation. If you find out about the different classes of taxes, tax rates, and allowable exemptions, then you will be more able to tread the system.
