Tax Basics

The word tax has two meanings: first, the financial duty or levy contributed to the entity (be it a government or any other organization) a person or group of persons (say, a business) is part of. The second definition is "a very heavy burden" and can essentially summarize the first definition.

 While there are opposing views on imposing tax, the general idea is that taxes are used to fund projects that can benefit society as a whole, or at least the majority of it. Businesses are taxed by the state because they use government-owned infrastructures and services. Individuals are taxed as part of their social contract, i.e., their rights and responsibilities as citizens of the state. Tax is what John F. Kennedy called "the annual price of citizenship."

 India has a well developed Tax structure with a three‐tier federal structure, comprising of the Union Government, the State  Governments, and the urban/rural local bodies. The power to levy taxes and duties is distributed among the three tiers of governments, in accordance with the provisions of the Indian Constitution

 The main taxes/duties that the Union Government is empowered to levy are Income Tax (except tax on agricultural income, which the State Governments can levy), Customs duties, Central Excise and Sales Tax(CST)(VAT is used in place of sales tax), and Service Tax.

 The principal taxes levied by the State Governments are Sales Tax (tax on intra‐State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue, Duty on Entertainment and Tax on profession and callings.

 

Local bodies are empowered to levy tax on properties, Octroi, Tax on Markets, and tax/user charges for utilities like water supply, drainage, etc.

Types of taxes
1. DIRECT TAXES
1.1 Income tax : An income tax is tax levied on financial income of person co-operation or  other legal entity.
1.2 Wealth tax
1.3 Property tax   etc.

2. INDIRECT TAXES
2.1 Custom duty : Custom Duty Is A Tax Which A State Collects On Goods Imported Or Exported Out Of The Boundaries Of The Country In India, Custom Duties Are Levied On The Goods And At The Rates Specified In The Schedules To The Custom Tariff Act, 1975.

Customs is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, personal effects and hazardous items in and out of a country. Depending on local legislation and regulations, the import or export of some goods may be restricted or forbidden, and the customs agency enforces these rules.The customs LEBA may be different from the immigration authority, which monitors persons who leave or enter the country, checking for appropriate documentation, apprehending people wanted by international arrest warrants, and impeding the entry of others deemed dangerous to the country.

A customs duty is a tariff or tax on the import of or export of goods.

2.2 Excise duty : Excise duty  is an indirect tax levied and collected on goods manufactures in india.
             An excise is an indirect tax, meaning that the producer or seller who pays the tax to the government is expected to try to recover the tax by raising the price paid by the buyer (that is, to shift or pass on the tax). Excises are typically imposed in addition to another indirect tax such as a sales tax or VAT. In common terminology (but not necessarily in law) an excise is distinguished from a sales tax or VAT in three ways: (i) an excise typically applies to a narrower range of products; (ii) an excise is typically heavier, accounting for higher fractions (sometimes half or more) of the retail prices of the targeted products; and (iii) an excise is typically specific (so much per unit of measure; e.g. so many cents per gallon), whereas a sales tax or VAT is ad valorem, i.e. proportional to value (a percentage of the price in the case of a sales tax, or of value added in the case of a VAT).

Typical examples of excise duties are taxes on gasoline and other fuels, and taxes on tobacco and alcohol (sometimes referred to as sin taxes).

2.3 Sales tax/Vat: Sales tax is a tax on the supply of goods  and certain services ,it is charged  at the time of sale and then deposited in the Government treasury.
               Vat Paid By Dealers On Their Purchases Is Usually Available For Set-off Against The Vat Collected On Sales.
Under The Vat, The Tax Rates Have Been Simplified:

  • 4% For Items Consisting Mainly Of Raw Materials Used In The Manufacturing Process
  • 12.5% For All Goods Unless They Are Listed Under The Other Rates.
  • Foodgrains Including Pulses, Milk, Vegetables Books are Not Subject To Vat.

WHAT  TYPES OF BUSINESS ARE  NOT LIABLE FOR SALES TAX?            

  • Agricultural  Products
  • Most Of Pharmaceutical Products
  • Educational & Scientific Materials
  • Equipment For Fighting AIDS & CANCER

3. Service Tax: Service tax is an indirect tax levied under the Finance Act, 1994, as amended from time to time, on specified services. At present, there are approximately 96 categories (including 15 new services introduced by Budget 2006) of net services taxable under the service tax.

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