A robust system of taxation is the cornerstone of any well functioning nation. The taxes to be paid come in various forms – income tax, capital gains tax and of late, the highly coveted Goods and Service Tax (GST), among others. While we see it in different guises, the idea of tax is nothing more than a sum that individuals or corporations pay to the state and the central government to help build and maintain the economy by meeting various public expenses. These public expenses are essential to sustaining our basic needs as citizens of the country. In this sense, the taxes we pay can broadly be divided into two categories, based on whom the tax is being paid to and how the payment is constituted:

1. Direct Taxes
2. Indirect Taxes

1) Direct Taxes: 

Direct taxes are those taxes which are directly paid to the government by you (the taxpayer). It is a tax applied on individuals and organizations by the government. In terms of direct taxes, the liability of payment resides completely on the original taxpayer and cannot be passed on or transferred to another entity. Some common examples are income tax, corporate tax and capital gains tax. Two classes of direct tax – estate tax and wealth tax – are not collected in India anymore.

Income Tax: 

Income Tax is paid by an individual on the basis of their net taxable income in a given financial year. It is calculated as per the provisions of the Income Tax Act, 1961. The income tax rate that is applicable to you depends on which of the tax bracket you fall under. Income tax is generally collected through the tax deducted at source (TDS) channel. Based on your annual income tax returns submission, you may be eligible for certain tax refunds. The tax on income generated by businesses is known as Corporate Tax. For Assessment year FY 21-22, there are two tax structures which an individual can choose from. One can choose the old tax regime and take benefits from the various exemptions or choose to move to the new tax regime where most exemptions are not allowed to be taken and the tax rates are lower.

Capital Gains Tax: 

The profits you make on the sale of property are taxable under capital gains tax. Property in this case includes stocks, bonds, residential property, precious metals and other such assets. There are two types of tax calculations based on the duration for which the property has been owned by the taxpayer: short term capital gains tax and long term capital gains tax. The deciding period of ownership varies for different types of property. While there are various slabs that determine the rate at which short term capital gains are taxed, long term capital gains are taxed at a flat 20%. 

2) Indirect Taxes: 

Indirect Tax is a fee which is levied on goods and services by the government. The liability to pay indirect tax is transferred or passed on from one entity to another. These fees are initially paid to the government by an intermediary. They add this amount of the tax paid to the value of the goods or services along the supply chain until it reaches the end user. A few examples of indirect taxes in India include service tax, central excise duty, entertainment tax and value added tax (VAT). As of 2017, almost all the common indirect taxes have been collected under a single category of a Goods and Service Tax (GST).

GST – a unifying indirect tax:

GST was implemented in India as a unifying indirect tax to bring uniformity to the taxation of goods and services across the country. It is a consumption based tax as opposed to the production based taxes mentioned above. It was introduced to eliminate the burden of a cascading effect of taxes that often leads to the consumer suffering a hefty price. All GST formalities are required to be completed through an online GST Portal which makes it easier to track and identify any malicious activities.