A type of tax where the
impact and the incidence fall under the same category can be defined as a
Direct Tax. The tax is paid directly by the organisation or an individual to
the entity that has imposed the payment. The tax must be paid directly to the
government and cannot be paid to anyone else.
Types of Direct
The various types of direct tax that are imposed in
India are mentioned below:
Depending on an individual’s age and earnings,
income tax must be paid. Various tax slabs are determined by the Government of
India which determines the amount of Income Tax that must be paid. The taxpayer
must file Income Tax Returns (ITR) on a yearly basis. Individuals may receive a refund or might
have to pay a tax depending on their ITR. Huge penalties are levied in case
individuals do not file ITR.
The tax must be paid on a yearly basis and depends
on the ownership of properties and the market value of the property. In case an
individual owns a property, wealth tax must be paid and does not depend on
whether the property generates an income or not. Corporate taxpayers, Hindu
Undivided Families (HUFs), and individuals must pay wealth tax depending on
their residential status. Payment of wealth tax is exempt for assets like gold
deposit bonds, stock holdings, house property, commercial property that have been rented for more than 300
days, and if the house property is owned for business and professional use.
It is also called as Inheritance Tax and is paid
based on the value of the estate or the money that an individual has left after
Domestic companies, apart from
shareholders, will have to pay corporate tax. Foreign corporations who make an
income in India will also have to pay corporate tax. Income earned via selling
assets, technical service fees, dividends, royalties, or interest that is based
in India are taxable. The below-mentioned taxes are also included under
Transaction Tax (STT)
The tax must be paid for any
income that is earned via security transactions that are taxable.
Distribution Tax (DDT)
In case any domestic companies
declare, distribute, or are paid any amounts as dividends by shareholders, DDT
is levied on them. However, DDT is not levied on foreign companies.
Fringe Benefits Tax
Companies that provide fringe
benefits for maids, drivers, etc., Fringe Benefits Tax is levied on them.
For zero tax companies that have
accounts prepared according to the Companies Act, MAT is levied on them.
Capital Gains Tax
It is a form of direct tax that
is paid due to the income that is earned from the sale of assets or
investments. Investments in farms, bonds, shares, businesses, art, and home
come under capital assets. Based on its holding period, tax can be classified
into long-term and short-term. Any assets, apart from securities, that are sold
within 36 months from the time they were acquired come under short-term gains.
Long-term assets are levied if any income is generated from the sale of
properties that have been held for a duration of more than 36 months.