Taxation Process

Learn the Basics of Taxation Process in India

Taxation plays a vital role in the economic development of any country.  It is a system used by government of any country to raise or collect revenue from the public. Any government makes use of the collected revenues for the wellbeing of society in different forms such as by paying wages to police or soldiers, by constructing dams or roads, by operating hospitals and schools, by providing meals and medical services to the poor people, and so on. It is difficult for any government to exist without collecting taxes. For maintaining equality in a society, it is necessary to impose taxes on society.

Understand the term ‘Tax’

Tax can be defined as the part of income collected by government from us to provide several facilities like school, medical, water and drainage system, roads constructions, etc. It is a required payment charged by government of any country on individuals or companies for meeting the expenditure which is requisite for the welfare of a society.

Let’s walk through some the features of Tax:

  • Tax is a compulsory payment for the benefit of society
  • It needs legal sanction
  • It is considered as a personal responsibility
  • Tax is waged out of the total income earned by the tax payer

Taxation Structure as per Indian Viewpoint

In India, mainly two types of taxes are implemented:

  1. Direct Tax: This tax is paid directly by people of India to the government. Direct tax is further divided into various types as given below:

1.1 Income Tax: As its name implies, it is a tax on the total income of a tax payer

1.2 Wealth Tax: This tax is charged on the net assets

  1. Indirect Tax: This tax is indirectly paid by the people of India to the government. Indirect tax is further divided into various types as given below:

2.1 Central Excise Duty: It is levied on manufacture or production of goods

2.2. Custom Duty: This type of tax is charged by central government on the import and export of goods from India

2.3 Value Added Tax: It is a tax on the sale of goods which is implemented within the states only. VAT is a multi-stage tax and is paid by the wholesaler, retailers, manufacturer, and is also transferred on consumer.

2.4 Service Tax: Service Tax is a tax levied on taxable services. In this, usually service provider pays text and then recovers it from the consumer from the receiver of the taxable service