Direct Income Tax
What is Direct Income Tax?
As the name suggests these taxes are directly paid by the assesse to the government. These are not paid on behalf of the taxpayers but are imposed directly by the regulator. Furthermore, this liability is non-transferable to another taxpayer.
What Are The Different Types Of Direct Taxes?
Here are the different types of direct taxes in the country:
1. Corporate tax
Such tax is levied on domestic companies that are different from the shareholders. This tax is also payable by foreign corporations whose income arises or is deemed to arise in India. Income earned as interest, royalties, dividends, technical services fees, or gains through the sale of assets based in India is taxable. Corporate tax also includes the following:
Minimum Alternate Tax (MAT)Levied on zero tax companies whose accounts are prepared as per the guidelines of the Companies Act.
Fringe Benefits TaxSuch direct tax is paid by companies on fringe benefits (drivers, maids, etc.) provided to employees.
Dividend Distribution Tax (DDT)This tax is levied on any amounts that are declared, distributed, or paid by domestic entities as dividends to the shareholders; foreign companies are exempt from DDT.
Securities Transaction Tax (STT)This liability arises from income earned through taxable securities transactions.
2. Wealth tax
This liability arises from the ownership of properties and is paid every year based on the market value of the property. Property owners must pay this tax irrespective of whether the property earns them any income or not. Depending on the residential status of the taxpayers, wealth tax is payable by individuals, Hindu Undivided Family (HUF), and corporate taxpayers. Working assets like stock holdings, gold deposit bonds, commercial complex properties, house property rented for more than 300 days in a year, and house property owned for professional or business use are exempt from paying wealth tax.
3. Capital gains tax
This type of direct tax in India is payable on income earned from the sale of investments or assets. Capital assets include investments in homes, art, businesses, shares, bonds, and farms. Capital gains are calculated as the difference between the sale value and the purchase value of these assets. This tax is classified as either short-term or long-term based on its holding period. All assets (except securities) that are sold within 36 months of acquisition are liable to short-term gains. Gains made through the sale of assets that are held for more than 36 months are long-term assets.
Benefits of Direct Income Taxes:
EquityDirect taxes are levied on the total income of the taxpayers. Therefore, taxpayers with higher income pay more tax while taxpayers earning less pay lower to no taxes. This makes direct taxation equal and just for the majority of the Indian population.
ProgressiveThe primary objective of any government is to achieve equal distribution of wealth. Direct taxes in India play an important role in attaining this equality. These taxes are designed with progressiveness; they are beneficial in reducing income inequalities. The government levies higher taxes on taxpayers who can afford them and uses this money to help the poor, which reduces the income inequality.
ProductiveThese types of taxes are productive and elastic. The revenue earned through such taxes automatically increases or decreases depending on the changes in the national wealth of the country.
EconomicSince taxpayers pay this tax annually, the administrative costs borne by governing authorities for the levy and collection of tax are reduced. This makes the process more economical which is beneficial for the overall growth of the nation.
Disadvantages of Direct Income Taxes :
Tax evasionThis is probably the biggest disadvantage of such taxes. When there are loopholes in the legal system, the probability of tax evasion through manipulative techniques is higher. Several taxpayers suppress profits by manipulating their financial statements, which reduces their tax liability.
Social conflictThere is a probability of social conflict because the entire population is not liable to pay these taxes. This may result in criminal acts, inferiority complex among the lower strata, and social injustice.
InconvenienceFiling and submission of direct taxes require the taxpayers to fulfill several formalities and go through numerous procedures. This makes the entire process cumbersome and inconvenient for the taxpayers.
- Although there are some disadvantages of these taxes, direct tax in India comprises a significant component of the economy. When implemented appropriately, these taxes serve as an excellent way to prevent inflation and sustain price levels.
- Indirect Tax in India
- Income Tax Slab Deductions
- Income Tax Post Budget 2017
- Deductions Under Section 80 C
- Deductions Under Section 80 D
To learn more about the income tax slabs AY 18-19, click here.
Income Tax Slab 2021-22
February 17, 2020
Income Tax Return Guide - Details You Should Know
November 07, 2016
Best Tax Saving Investment Options in 2022 (FY 2022-2023)
November 08, 2016
Subscribe to get the latest articles directly in your inbox
14 Best Investment Options In India
October 30, 2018
Short Term Investments: Top 11 Short Term Investment Options For 2022
November 08, 2016
Insurance vs Investment - Did You Get the Right Financial Plan?
November 05, 2018
Popular & Recent Articles
How to Plan for Retirement as Per your Age
"The thumb rule for retirement planning is - the earlier you start, the more you save. However, with age, your priorities change too. So, you need to factor in the cost of living in the present vis- a -vis future."
HDFC Life Insurance Company Limited. CIN: L65110MH2000PLC128245, IRDAI Reg. No. 101.
Registered Office: Lodha Excelus, 13th Floor, Apollo Mills Compound, N.M. Joshi Marg, Mahalaxmi, Mumbai 400 011. Email: [email protected], Tel No: 1800-266-9777 (10 am to 7 pm). The name/letters “HDFC” in the name/logo of the company belongs to Housing Development Finance Corporation Limited (“HDFC Limited”) and is used by HDFC Life under an agreement entered into with HDFC Limited.
For more details on risk factors, associated terms and conditions and exclusions please read sales brochure carefully before concluding a sale.
|BEWARE OF SPURIOUS PHONE CALLS AND FICTIOUS/FRAUDULENT OFFERS
- term insurance plan
- savings plan
- ulip plan
- retirement plans
- health plans
- child insurance plans
- group insurance plans
- long term savings plan
- fixed maturity plan
- monthly income advantage plan
- income tax calculator
- pension calculator
- bmi calculator
- compound interest calculator
- term insurance calculator
- income tax
- tax saving investment options
- best investment plans
- benefits of term insurance calculator
- what is term insurance
- why to invest in life insurance
- tax planning for salaried employees
- how to choose best child insurance plan
- tips for buying retirement plan
- 1 crore term insurance
- importance of saving
- short term saving plans
- types of investment in india
- investment declaration