Tax Concepts: Crack the code of India’s Tax System

Tax concepts are easy, but you should know how the system works properly. Moreover, Knowing taxation is necessary because it applies to almost every item we purchase daily.

As a result, We will know which type of tax applies to what we spend the next time we purchase. Taxes are important and apply to all countries in the world, but the thing is, every country has its own taxation rules.

That sounds interesting, doesn’t it? In this context, we will explore all the tax concepts applied in India.

What is Tax Concepts?

We call tax as ‘taxation’. It is compulsory to collect taxes from people who earn income from the government, individuals, organizations, and other businesses as per Article 246 of the Indian constitution.

The Government Collects taxes for the nation’s development and to improve our infrastructure.

We pay taxes for the better services a quality government can provide to simplify our lives. Taxing is compulsory for those earning a minimum of 2.5 lakhs. Additionally, according to the laws, If you don’t pay tax and get caught, you must pay a penalty.

Different Types of Tax Concepts

India has a dual tax system, which is a direct and indirect tax, but there are also more taxation classification types.

So, let’s dive into taxation and understand how it works in detail.

Direct Tax Concepts

If you earn money from any source, whether an individual, business, or government employee, these taxes are applied to you.

You have to pay taxes directly to the government in the form of Income Tax, or we pay for it by filing an ITR (Income Tax Return). Income Tax has various types based on various earnings or income.

Collecting direct taxes from a person is difficult because verifying wealth and income for a particular person presents more challenges.

Additionally, you can save your taxes by saving in funds, doing sips, or investing in FDs. You just have to research it. As I have told you, direct taxes are applied to income or wealth. Let’s discuss the type of direct tax.

Income Tax

This is the most used tax form in India. It is the tax an individual or entity pays on their total income. The Indian government has provided two taxation options.

Section 80C and Section 80D can help to reduce your taxable income.

Corporate Tax

Companies pay these taxes on their profit. Different percentages of taxation apply to different-sized companies. Let’s examine the table to better understand corporate taxes.

Capital Gain Tax

Capital gain tax is applied when you sell something like gold, assets, stocks and mutual funds. These taxes are applied when you gain profits on these.

This tax also has two categories, short-term and long-term:-

Short Term: In stock markets, the short term is less than 12 months. When you are in profits and sell the stock in less than 12 months, a 20% tax will be applied to your profits.

Long-term: It is applied after 12 months when you sell the stocks. Then, a 12.5% tax is applied when you reach Rs. 1.25 lakh in a fiscal year.

Indirect Tax Concepts

The indirect tax applies to goods, services, and things we consume to make our lives easier. The method of collecting this tax differs from that of the direct tax.

This tax is included as GST ( Goods and Services Tax) when we buy or sell anything. Different % GST applies to different products. Both the Seller and the buyer pay taxes to the government.

The seller applies these taxes to collect indirect tax from the buyer. There are some types of Indirect Tax. Let’s dive into it:-

GST( Goods and Services Tax)

GST First was introduced in 2017. It helps to solve many complex problems in the Indian tax structure. The tax process is based on a destination tax levied on sales and consumption.

Gst is divided into Four parts:-

• State GST (SGST): The state government collects it from intra-state sales.
• Central GST (CGST): The government collects it from intra-state sales.
• Integrated GST (IGST): The state government collects it on intrastate sales and imports.
• Union Territory Goods and Services Tax (UTGST): Assessed when products or services are supplied in Union Territories such as Chandigarh and Delhi.

How to File Taxes in India

Filing the ITR is also easy in this digital, online world. But if you still don’t understand how the process works or you don’t have enough time, you should visit a CA.

The process of ITR filing.

1. Pan and Aadhaar

A PAN card is a Permanent Account Number, a 10-digit unique alphanumeric number given by the government after one turns 18.

In addition Linking your aadhaar with PAN is now mandatory for filing income tax returns.

2. Form 16 For salaried and Individuals

Your employer will give you Form 16 if you are a salaried employee. That will be a summary of the salary. The Employer has already deducted the tax for the money you have earned in a financial year of that income.

In contrast, freelancers and businesses are responsible for self-reporting their income through invoices or receipts.

3. ITR Forms

There are 3 different forms according to your income as follows:-

• ITR 1 (Sahaj):- For Individual income from house property or other sources.
• ITR 2:- For HUFs and Individuals not having income from profession or business.
• ITR 3:- For HUFs and Individuals with income from profession or business.

After that, when you have decided which form to fill out, you can go to the income tax portal and file your return there.

It is an easy process once you understand everything.

TDS and TCS in Income Tax

TDS: TDS is like a pretax on income applied by the Government. You may have heard about TDS from many employees.

TDS Cuts Are Imposed on their salary, some % of the monthly amount as a TDS. These taxes are advance taxes to ensure taxes are paid in advance instead of at the end of the year.

TCS(Tax collected at Source)

It is similar to TDS, but it applies while purchasing. It is applied when you purchase Food at a Restaurant, alcohol, and so on.

The business owner applies this tax on your bill and gives it to the government.

Advance Tax and Self-Assessment Tax

This Tax applies to business owners and freelancers. If they exceed their total tax of 10,000 Rs., they must pay taxes in instalments throughout the year. However, salaried individuals pay taxes through taxes, known as Advance Tax.

In addition, if your tax liabilities remain unpaid at the end of the financial year, you must pay Self-Assessment Tax before filing your return. This is known as Self-Assessment Tax.

Claiming Refunds and Notices

Claiming Refunds:- If you have paid more than your actual tax. You can claim a refund while filing your ITR. The Income tax department will refund that money to your account.

Notices: Income tax departments send notices when they detect mismatched income data. They can also send notices if you don’t file an ITR.

So don’t panic about the notice. Address the problem, and you can respond to the government notice through the Income Tax Department Portal to fix the issue.

Recent Reforms in Tax Concepts

The government introduced GST in 2017 to reduce the complexity of taxation. The old system had loopholes, which some avoided to evade taxes.

To Stop the government from making changes to taxation, the government divided it into GST. After the GST was introduced, the Government saw a significant improvement in taxation. It stopped evaders, and it became tough for them to escape.

Conclusion

First, thank you for taking action and learning about the tax system. It is not about paying taxes to the government; you are also contributing to your country’s development. I appreciate you.

Understanding the Tax concepts may seem tough initially, but it becomes easier once you break down and understand the different components.

Maybe you are salaried or a business owner. Taxation and how this works should be familiar to everyone. You are earning money, so you should know where your money goes.

Stay healthy and Stay updated. 🙂