Taxes in India – Part 1

Uploaded by : DreamGains Financials, Posted on : 24 Aug 2015


How many of you actually love to pay tax & how many of you know that government ask us to pay tax via 20 different manners?  In this article you will be provided brief information about these 20 taxes in India.


Tax is imposing financial charges on individual or company by central government or state government. Collected Tax amount is used for building nation (infrastructure & other development), to increase arms and ammunition for defence of country and for other welfare related work. That’s why it is said that “Taxes are paid nation are made”.

Direct Taxes:-

These types of taxes are directly imposed & paid to Government of India. There has been a steady rise in the net Direct Tax collections in India over the years, which is healthy signal. Direct taxes, which are imposed by the Government of India, are:

1)   Income Tax:-

Income Tax

Income tax, this tax is mostly known to everyone. Every individual whose total income exceeds taxable limit has to pay income tax based on prevailing rates applicable time to time.

By doing investment in certain scheme you can save Income Tax.

2)   Capital Gains Tax:-

Capital Gain tax as name suggests it is tax on gain in capital. If you sale property, shares, bonds & precious material etc. and earn profit on it within predefined time frame you are supposed to pay capital gain tax. The capital gain is the difference between the money received from selling the asset and the price paid for it.

Capital gains tax

Capital gain tax is categorized into short-term gains and long-term gains. The Long-term Capital Gains Tax is charged if the capital assets are kept for more than certain period 1 year in case of share and 3 years in case of property. Short-term Capital Gains Tax is applicable if these assets are held for less than the above-mentioned period.

Rate at which this tax is applied varies based on investment class.

3)   Securities Transaction Tax:-

A lot of people do not declare their profit and avoid paying capital gain tax, as government can only tax those profits, which have been declared by people. To fight with this situation Government has introduced STT (Securities Transaction Tax) which is applicable on every transaction done at stock exchange. That means if you buy or sell equity shares, derivative instruments, equity oriented Mutual Funds this tax is applicable.

Securities Transaction Tax

This tax is added to the price of security during the transaction itself, hence you cannot avoid (save) it. As this tax amount is very low people do not notice it much.

4)   Perquisite Tax:-

Earlier to Perquisite Tax we had tax called FBT (Fringe Benefit Tax) which was abolished in 2009, this tax is on benefit given by employer to employee. E.g If your company provides you non-monetary benefits like car with driver, club membership, ESOP etc. All this benefit is taxable under perquisite Tax.

 Perquisite Tax 4a

In case of ESOP the employee will have to pay tax on the difference between the Fair Market Value (FMV) of the shares on the date of exercise and the price paid by him/her.

5)   Corporate Tax:-

 Corporate Tax

Corporate Taxes are annual taxes payable on the income of a corporate operating in India. For the purpose of taxation companies in India are broadly classified into domestic companies and foreign companies.

In addition to above other taxes are also applicable on corporates.


Indirect Taxes:-

6)   Sales Tax:-

Sales tax charged on the sales of movable goods. Sale tax on Inter State sale is charged by Union Government, while sales tax on intra-State sale (sale within State) (now termed as VAT) is charged by State Government.

Sales Tax

Sales can be broadly classified in three categories. (a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e. within the State) sale. State Government can impose sales tax only on sale within the State.

CST is payable on inter-State sales is @ 2%, if C form is obtained. Even if CST is charged by Union Government, the revenue goes to State Government. State from which movement of goods commences gets revenue. CST Act is administered by State Government.

7)   Service Tax:-

Most of the paid services you take you have to pay service tax on those services. This tax is called service tax.  Over the past few years, service tax been expanded to cover new services.

Service Tax

Few of the major service which comes under vicinity of service tax are telephone, tour operator, architect, interior decorator, advertising, beauty parlour, health center, banking and financial service, event management, maintenance service, consultancy service

Current rate of interest on service tax is 14%. This tax is passed on to us by service provider.

8)   Value Added Tax:-

The Sales Tax is the most important source of revenue of the state governments; every state has their respective Sales Tax Act. The tax rates are also different for respective states.

Value Added Tax

Tax imposed by Central government on sale of goods is called as Sales tax same is called as Value added tax by state government. VAT is additional to the price of goods and passed on to us as buyer (end user). Around 220+ Items are covered with VAT.VAT rates vary based on nature of item and state.

Government is planning to merge service tax and sales tax in form of Goods service tax (GST).

9)   Custom duty & Octroi (On Goods):-

Custom Duty is a type of indirect tax charged on goods imported into India. One has to pay this duty, on goods that are imported from a foreign country into India. This duty is often payable at the port of entry (like the airport). This duty rate varies based on nature of items.

Custom duty & Octroi

Octroi is tax applicable on goods entering in to municipality or any other jurisdiction for use, consumption or sale. In simple terms one can call it as Entry Tax.

10) Excise Duty:-

An excise or excise duty is a type of tax charged on goods produced within the country. This is opposite to custom duty which is charged on bringing goods from outside of country. Another name of this tax is CENVAT (Central Value Added Tax).


If you are producer / manufacturer of goods or you hire labour to manufacture goods you are liable to pay excise duty.

11) Anti-Dumping Duty:-


Dumping is said to occur when the goods are exported by a country to another country at a price lower than its normal value. This is an unfair trade practice which can have a distortive effect on international trade. In order to rectify this situation Central Govt. imposes an anti-dumping duty not exceeding the margin of dumping in relation to such goods.