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Taxation in India

Taxes are the government’s way of earning an income which can then be used for various projects that the government needs to indulge in to help boost the country’s economy or its people. Taxes in India are decided on by the central and state governments with local governments, such as municipalities, also deciding on smaller taxes that can be levied within their jurisdiction. It must, however, be remembered that the government cannot impose any tax that it wishes to. All the taxes imposed by the government must be laws.

Even though most people are always at odds with the idea of taxation, there are some advantages to taxes, the least of which is that it provides the government the resources it needs for economic development.
  • It encourages savings and investments because if a person invests in certain instruments, then the amount invested is reduced from their taxable income thus bringing down the tax they have to pay.
  • Paying taxes means that you have to file your tax returns which in turn means that when you apply for a home loan for that home loan, it’s easier to get it.
Types of Taxes

Taxes are of two distinct types, direct and indirect taxes. The difference comes in the way these taxes are implemented. Some are paid directly by you, such as the dreaded income tax, wealth tax, corporate tax etc. while others are indirect taxes, such as the value added tax, service tax, sales tax, etc.

1) Direct Tax:

Direct tax, as stated earlier, are taxes that are paid directly by you. These taxes are levied directly on an entity or an individual and cannot be transferred onto anyone else. One of the bodies that overlooks these direct taxes is the Central Board of Direct Taxes (CBDT) which is a part of the Department of Revenue. It has, to help it with its duties, the support of various acts that govern various aspects of direct taxes.

2) Indirect Tax:

By definition, indirect taxes are those taxes that are levied on goods or services. They differ from direct taxes because they are not levied on a person who pays them directly to the government, they are instead levied on products and are collected by an intermediary, the person selling the product. The most common examples of indirect tax can be VAT (Value Added Tax), Taxes on Imported Goods, Sales Tax, etc. These taxes are levied by adding them to the price of the service or product which tends to push the cost of the product up.

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