Types of Taxes investor has to pay the government

Taxes are imposed by governments on their citizens to generate income for undertaking projects to grow the economy of the country and to elevate the standard of living of its citizens. The authority of the government to impose taxes in India is derived from the Constitution of India, which apportion the power to impose taxes on the Central and State governments. All taxes imposed within India need to be backed up by a conduct law passed by the Parliament or the State Legislature.

The payment of tax is favorable on multiple levels including the development of the nation, improvement of infrastructure, the raise of the society, and even for well-being activities for the nation.

Types of Taxes

There are two main classifications of taxes, which are further sub-divided into other classifications. The two major classifications are direct tax and indirect tax. There are also other taxes that fall into different sub-classifications.

1. Direct Tax

Direct tax is paid straightly to the government by the individual or legal entity. Direct taxes are monitored by the Central Board of Direct Taxes (CBDT). Direct taxes cannot be shifted to any other individual or legal entity.

Sub-classifications of Direct Taxes

The following are the sub-classifications of direct taxes:

1. Income tax:

This is the tax that is imposed on the annual income or the gains that are directly paid to the government. Everyone who earns any kind of income is accountable to pay income tax. For individuals below 60 years of age, the tax dispensation limit is Rs.2.5 lakh per annum. For individuals between the age of 60 and 80, the tax dispensation limit is Rs.3 lakh. For individuals above the age of 80, the tax dispensation limit is Rs.5 lakh.

2. Capital gains:

Capital gains tax is imposed on the sale of a property or money received through an investment.

3. Securities transaction Tax:

STT is imposed on the stock market and securities trading. The tax is imposed on the price of the share as well as securities traded on the ISE (Indian Stock Exchange).

4. Prerequisite Tax:

These are taxes that are imposed on the different benefits and perks that are provided by a company to its employees.

5. Corporate tax:

The income tax paid by a company is defined as corporate tax. The sub-categories of corporate taxes are as follows:

-Dividend distribution tax ( DDT): This tax is imposed on the dividends that companies pay to the investors.

-Fringe benefits tax (FBT): This is the tax imposed on the fringe benefits that an employee receives from the company. This includes expenses related to accommodation, transportation, leave travel allowance, entertainment, retirement fund contribution by the employee, employee welfare, Employee Stock Ownership Plan (ESOP), etc.

2. Indirect tax

Taxes that are imposed on services and products are called indirect taxes. It raises the price of the product or service. There is only one indirect tax imposed by the government currently. Refer as Goods and Services Tax.

-GST: This is a consumption tax that is imposed on the supply of services and goods in India. Each step of the production process of any goods or value-added services is subject to the imposition of GST. It is proposed to be repay to the parties that are involved in the production process.

3. Other taxes

Other taxes are slight income alternator and are small taxes. The various sub-classifications of other taxes are as follows:

1. Property tax:

It is also known as Real Estate Tax or Municipal Tax. Residential property owners are subject to property tax. The preservation of some of the fundamental civil services. Property tax is issued by the municipal bodies based in each city.

2. Professional tax:

This employment tax is imposed on those who practice a profession or earn a salaried income such as lawyers, chartered accountants, doctors, etc. This tax differs from state to state. Not all states impose professional tax.

3. Entertainment tax:

This is a tax that is imposed on television series, movies, exhibitions, etc. The tax is imposed on the gross collections from the earnings. Entertainment tax is also referred to as amusement tax.

4. Registration fees, transfer tax:

These tax is collected in addition to or as a supplement to property tax at the time of acquiring a property.

5. Education:

This is imposed to fund the educational programs launched and maintained by the government of India.

6.Entry tax:

This is a tax that is imposed on the products or goods that enter a state, specifically through e-commerce establishments and is applicable in the states of Delhi, Assam, Gujarat, Madhya Pradesh, etc.

7. Road tax and toll tax:

This type of tax is used for the maintenance of roads and toll infrastructure.

Benefits of taxes

The motive of taxes is to provide the government with funds for expanding without boom. Taxes are used by the government for a variety of motives, some of which are:

  • -Funding of public infrastructure
  • -Development and welfare projects
  • -Defense expenditure
  • -Scientific research
  • -Public insurance
  • -Salaries of state and government employees
  • -Operation of the government
  • -Public transportation
  • -Unemployment benefits
  • -Pension schemes
  • -Law enforcement
  • -Public health
  • -Public education

Advantages of Paying Taxes

It is necessary and useful for anybody who acquires an available compensation (which is one that surpasses the essential exception limit) to record their annual government forms.

1. Loan:

Before applying for a loan, particularly home credits, vehicle advances, and so forth, significant banks can pursue a duplicate of your annual government forms. ITR from the last 2 to 3 years. ITR could in fact assist with getting a higher advance sum or to get your credit application rethought in the event that it was dismissed right away. Banks compute your capacity to reimburse the credit in light of your pay.

2. Visa applications:

Various new offices anticipate that you should furnish your own administration types of the previous years during the visa interview. While for some, the most recent one will be satisfactory, others expect up to 2-3 years of benefits to be furnished. This is required for the UK, US, Europe, and Canada, but not such a lot for South East Asian countries and the Middle East. This is because yearly appraisal structures are confirmation that you are taking the necessary steps not to give the country to evade charges. Regardless, while traveling abroad for unwinding or business, it is by and large reasonable to pass your ITR receipts as this will demonstrate on to be valuable because of any emergency when you really want to search for the help of an office.

3. Self-employed individuals:

Specialists, experts, business people, and accomplices of firms are not qualified for Form 16. On the off chance that their yearly pay surpasses the essential exception limit, ITR receipts can be outfitted as confirmation of pay. It is additionally verification of charges paid.

4. Government tenders:

This depends upon the solitary government office with no specific extreme standards, yet ITR receipts are sometimes referenced to be equipped while applying for any organization tenders. This is to ensure that you have sufficient compensation and can maintain the portion responsibilities.

5. Carrying forward of losses:

Present moment or long haul capital misfortunes are normally conveyed forward to be changed against the capital increases made in the resulting years. For instance, the drawn out capital deficiency of one year can be conveyed forward for up to 8 successive years that quickly succeed the year where the misfortune had happened. In any case, a drawn-out capital misfortune can be changed uniquely against a momentary capital addition of that year. Momentary capital increases, be that as it may, can be changed against both present moment and long haul gains. Be that as it may, this must be profited assuming annual assessment forms have been documented.

6. Claiming tax refunds:

Any discounts that are expected from the IT Department must be guaranteed assuming annual assessment forms have been documented. Regardless of whether payment is underneath the assessment exclusion section, there could be discounts from various investment funds instruments that can be asserted assuming ITRs are recorded.

7. High-cover extra security:

Life cover or a term strategy with aggregate protected that reaches from Rs.50 lakh to Rs.1 crore can be benefited exclusively by outfitting personal assessment forms which help in the confirmation of yearly pay. Such a high protection cover is possibly given when there is a big-league salary for which annual expenses from receipts is vital.

8. Pay:

For independently employed people, ITR receipts might need to be outfitted to guarantee payment in case of an engine vehicle mishap that outcomes in an inability or incidental demise. This is because, in order to arrive at the appropriate compensation, the income of the person is to be established first.

Penalty for not Paying Taxes

The government can impose penalties of varying degrees on any individual or legal entity that evades taxes. The penalty is subject to the classification of the duty that has not been paid. This implies that the sum that is owed as duties should be paid and moreover, the fine, as well as its advantage, is to be suffered as the consequence.


Taxes are imposed by governments on their citizens to generate income for undertaking projects to grow the economy of the country and to elevate the standard of living of its citizens. There are two main classifications of taxes, which are further sub-divided into other classifications. The two major classifications are direct tax and indirect tax. There are also other taxes that fall into different sub-classifications.

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