Direct Tax is a type of tax where the impact and the incidence fall under the same category and can be defined as a Direct Tax. The tax is paid directly by the organization 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 Taxes
The various types of direct tax that are imposed in India are mentioned below:
- Income Tax: 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) yearly. 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.
- Wealth tax must be paid every year 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.
- The estate tax: It is also called Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.
- Corporate Tax: 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 are based in India is taxable. The below-mentioned taxes are also included under Corporate Tax:
- Securities Transaction Tax (STT)The tax must be paid for any income that is earned via taxable security transactions.
- Dividend 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 TaxFor companies that provide fringe benefits for maids, drivers, etc., the Fringe Benefits Tax is levied on them.
- Minimum Alternate Tax (MAT)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 more than 36 months.