Direct Tax

A form of tax where the impact and incidence fall under the same category is known as Direct Tax. This tax is paid directly by an individual or an organization. All deductions under this tax are 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 :
  • Based on an individual’s age and earnings, income tax is calculated. Various tax slabs are determined by the Government of India. The taxpayer must file ITR before the end of the financial year. 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 :
  • This tax is also paid on yearly basis. It does not depend on whether the property generates income or not, all corporate taxpayers, HUFs, and the individual must pay wealth tax, based 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.
• Estate Tax :
  • Also known as Inheritance Tax. Paid based on the value of estate, or money an individual left after his or her death.
• Corporate Tax :
  • All domestic companies, apart from shareholders, have to pay corporate tax. Foreign corporations that are earning income from India also have to pay corporate tax. Income could be either in the form of technical service fees, dividends, royalties, or interest that is based in India.
• Securities Transaction Tax :
  • It must be paid on any income earned via securities transaction.
• Dividend Distribution Tax :
  • In case any domestic companies declare, distribute, or paid any amount as dividends by shareholders, DDT is levied on them
• Fringe Benefits Tax :
  • For companies that offer fringe benefits for maids, drivers, etc., Fringe Benefits Tax is levied on them
• Minimum Alternate Tax (MAT) :
  • For all zero-tax companies who prepared accounts according to the Companies Act, MAT is levied on them.
• Capital Gains Tax: :
  • It is a form of direct tax paid on the income earned from any sale of assets or investments. Investments in farms, bonds, shares, businesses, art, and homes come under capital assets. Based on the factors like holding period, tax is 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.

Tax Rate for the Different Types of Direct Tax :

Depending on the individual's age and salary, he/she will fall under a particular tax slab. The three different tax slabs are mentioned below: For resident individuals and Hindu Undivided Families (HUFs) who are below the age of 60 years:

Tax slab	Income tax
Up to Rs.2.5 lakh	Nil
From Rs.2,50,001 to Rs.5,00,000	5% of the total income that is more than Rs.2.5 lakh + 4% cess
From Rs.5,00,001 to Rs.10,00,000	20% of the total income that is more than Rs.5 lakh + Rs.12,500 + 4% cess
Income of above Rs.10 lakh	30% of the total income that is more than Rs.10 lakh + Rs.1,12,500 + 4% cess

For senior citizens who are above the age of 60 years and below the age of 80 years:

Tax slab	Income tax
Up to Rs.3 lakh	Nil
From Rs.3,00,001 to Rs.5,00,000	5% of the total income that is more than Rs.3 lakh + 4% cess
From Rs.5,00,001 to Rs.10,00,000	20% of the total income that is more than Rs.5 lakh + Rs.10,500 + 4% cess
Income of above Rs.10 lakh	30% of the total income that is more than Rs.10 lakh + Rs.1,10,000 + 4% cess

For resident Indians who are above the age of 80 years (Super Senior Citizen):

Tax slab	Income tax
Up to Rs.5 lakh	Nil
From Rs.5,00,001 to Rs.10,00,000	20% of the total income that is more than Rs.5 lakh + 4% cess
Above Rs.10 lakh	30% of the total income that is more than Rs.10 lakh + Rs.1,00,000 + 4% cess

New Income Tax Slab for Individuals

Income Tax Slab	Tax Rate
Up to Rs.2.5 lakh	Nil
From Rs.2,50,001 to Rs.5,00,000	5% of the total income that is more than Rs.2.5 lakh + 4% cess
From Rs.5,00,001 to Rs.7,50,000	10% of the total income that is more than Rs.5 lakh + 4% cess
From Rs.7,50,001 to Rs.10,00,000	15% of the total income that is more than Rs.7.5 lakh + 4% cess
From Rs.10,00,001 to Rs.12,50,000	20% of the total income that is more than Rs.10 lakh + 4% cess
From Rs.12,50,001 to Rs.15,00,000	25% of the total income that is more than Rs.12.5 lakh + 4% cess
Income above Rs.15,00,001	30%of the total income that is more than Rs.15 lakh + 4% cess

Domestic Companies :

• If your company’s turnover is less than Rs 250 Crore. The corporate tax to be levied is 25%. If turnover is above 30 Crore, it is to be levied as 30%.
• The surcharge to be applicable is 10% if the income earned falls between the slab of 1 crore and 10 Crore.
• In case the taxable income of the company is more than 10 Crore, the tax applicable is 12%.
• 4% of the corporate tax is levied as a cess.

International Companies :

In case the companies earn less than 1 crore, the corporate tax to be levied is 41.2%. The corporate tax includes 40% basic tax and 3% education cess. In case companies are earning more than Rs.1 crore, a corporate tax of 42.024% is levied. The corporate tax includes a 40% basic tax, a 2% surcharge, and a 3% education cess. In case companies earn more than Rs.10 crore, a surcharge of 5% is levied apart from the basic tax.

Capital Gains Tax :

Capital gain tax is levied on the long-term capital gains and indexation benefits. The tax to be levied is taxed as 20%. Without consideration of indexation, the capital gain tax to be levied is 10%.

Wealth Tax :

Based on net wealth, wealth tax is calculated. Net Wealth arrives by calculating the sum of taxable assets minus total debt.

Net Wealth = (Sum of all assets) - (sum of all debt).

The value of net wealth is considered on March 31 of every year that immediately precedes the assessment year. However, with effect from 1 April 2016, for wealth that was being held as of 31 March 2016, Wealth Tax has been abolished.

Direct Tax Code :

The Direct Tax Code or DTC came into existence to replace the Income Tax Act of 1961. This code helps in establishing a more equitable, effective, and transparent direct tax system. DTC was also drafted to amend and stabilize all laws that are related to direct taxes so that the tax-GDP ratio increases and voluntary compliance becomes easy.

Benefits of Direct Taxes :

• Economic and Social Balance : The Government of India has launched well-defined tax slabs based on individuals’ earnings and age. Exemptions are also put in place so that all income inequalities are balanced out.
• Productivity : As the number of people who are working for work and the community increases, returns from direct taxes also increase. Therefore, direct taxes are considered to be very productive.
• Inflation is curbed : Tax reductions by the government during inflation. The increase in taxes reduces the demand for goods and services, resulting in inflation to compress.
• Certainty : With the help of direct taxes, there is a sense of certainty from the government and the taxpayer.
• Makes it possible for equal wealth distribution : The higher the income, the higher will be the tax slab so as to make equal wealth distribution. This extra money is used to help the poor and lower societies in India.