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Direct Taxes

Direct taxes are mandatory taxes imposed by the government on the tax payer and cannot be passed on to anyone. Major direct taxes imposed in India are Income Tax, Wealth Tax and Corporate Tax

Income Tax

Income tax is the most common and most important tax that an Indian must pay.
It is charged directly on the income of a person.
The rate at which it is charged varies, depending on the level of income.
It’s charged to individuals, co-operative societies, firms, companies, Hindu Undivided Families (HUFs), trusts and any artificial judicial person.
Income tax is charged on an income known as “taxable income”, which is:
Taxable income = (total income) – (applicable deductions and exemptions).

The different heads of income under which income tax is chargeable are:

Income from house and property.
Income from business or profession.
Income from salaries.
Income in the form of capital gains.
Income from other sources.
It is levied differently for different people depending on their residency status.

Corporate Tax

Levied on companies who exist as separate entities from their shareholders.
Foreign companies are taxed on income that arises, or is deemed to arise, in India.
It is charged on royalties, interest, gains from sale of capital assets located in India, fees for technical services and dividends.
Includes Minimum Alternative Tax (MAT) which was introduced to bring Zero Tax companies under the income tax net, whose accounts were made in accordance with the Companies Act.
Includes Fringe Benefit Tax (FBT) which is a tax that companies pay on the fringe benefits provided (or deemed to have been provided) to employees.
Incudes Dividend Distribution Tax (DDT) which is a tax levied on any amount declared, distributed or paid as dividend by any domestic company. International companies are exempt from this tax.
Includes Securities Transaction Tax (STT) which is a tax levied on taxable securities transactions. There is not surcharge applicable on this.

Wealth Tax

Wealth tax is charged on the benefits derived from property ownership.
The same property will be taxed every year on its current market value.
Wealth tax is charged whether the property in earning an income or not.
The tax is levied on the individuals, HUFs, and companies alike.
Chargeability depends on residential status.
The following will not be taxed as they are “working assets”:

Assets held as stock in trade.
Property held as a commercial complex.
Gold deposit bonds.
House property held for business or profession.
House property let out over 300 days in a year.

Capital Gains Tax

Taxed on the income derived from the sale of assets or investments.
Capital investments cover homes, farms, businesses, works of art, etc.

Capital gains = (money received from sale) – (cost of capital investment).

Categorized as short-term gains (gains on assets sold within 36 months of acquisition) and long-term gains (gains on assets sold after 36 months of acquisition and holding).
Voluntary tax that is paid by the taxpayer when the asset it sold.