Direct Taxation

Introduction

Involuntary charges levied on individuals or businesses and enforced by a government agency— whether local, regional, or national — to finance government operations are called taxes. In economics, taxes are levied on whoever bears the tax burden, be it the taxing entity, like a corporation, or the end-users of the company's goods. In India Taxes are categorized into two forms:

➲ Direct Taxes

From the name, we can understand that those taxes which are directly collected from individuals or body corporate are termed as direct taxes like Income tax.

➲ Indirect taxes

From the name, it is cleared that those taxes which are collected indirectly from individuals and body corporate are termed as indirect tax like GST, Customs Duty, Excise duty etc

Direct taxes

It is a tax explicitly imposed on a taxpayer who pays it to the government and is unable to pass it on to someone else. It is directly imposed on taxpayers on their direct income.

Types Of Direct Taxes:

➲ Income tax:

The tax is collected directly on the taxpayer’s income. The taxpayer has to pay the tax as per the income bracket (slab) in which they fall. These income slabs are decided by the government every year.

➲ Wealth tax:

Wealth tax is imposed on the value of the property an individual owns. However, the government has abolished this tax.

Advantages of Direct Tax:

➲ It curbs inflation: When there is monetary inflation, the government also raises the tax rate, which in effect decreases demand for goods and services, and inflation is expected to condense as a result of declining demand.

➲ Social and economic balance: The government has well-defined tax slabs and exemptions in place so that income differences can be balanced based on the earnings of each person and the overall economic situation.

Tax Slab

 

  • Individuals below 60 Years of Age

Income range per annum

Slabs for FY 2020-21, AY 2021-22 (New)

Slabs, compulsory for FY 2019-20 and optional from FY2020-21

Up to Rs. 2.5 lakhs

No Tax

No tax

Above Rs. 2.5 lakhs to Rs. 5 lakhs

5%

5%

Above Rs. 5 lakhs to Rs. 7.5 lakhs

10%

20%

Above Rs. 7.5 lakhs to Rs. 10 lakhs

15%

20%

Above Rs. 10 lakhs to Rs. 12.5 lakhs

20%

30%

Above Rs. 12.5 lakhs to Rs. 15 lakhs

25%

30%

Above Rs. 15 lakhs

30%

30%

Exemption as per  section 87(A)

Tax rebate of 100 percent subject to a

limit of Rs 2,500 available to a citizen

whose total income does not exceed

Rs 3.5 lakhs

100% Tax rebate subject to a maximum limit of Rs 2,500 applicable to residents whose total income does not exceed Rs 3,5 lakhs

 

Cess at 4 percent of the tax applicable in all cases. Profits surcharge above Rs. 50 lakhs at 10 percent and profits over Rs. 1 crore at 15 percent.

Under the old income tax system, a refund of Rs. 12,500 is available, while the same refund is available under the new income tax scheme if the annual taxable income does not exceed Rs. 5 lakhs.

The overall tax liability reduction will range from Rs. 25,000 for a person earning Rs. 7.5 lakhs a year to Rs. 75,000 for a person earning Rs 15 lakhs or more a year under the new tax slabs. The real savings, however, would be smaller if one were to consider the impact of ignoring exemptions under the new tax regime.

 

 

 

 

For Senior Citizens (age more than 60 years but less than 80 years FY 2019-20)

Income range per annum

For FY 2020-21, AY 2020-21 (New Slab)

For FY 2019-20, AY 2020-21 tax rate

Up to Rs. 3 lakhs

No Tax

No Tax

Above Rs. 3 lakh to Rs. 5 lakhs

5%

5%

Above Rs. 5 lakhs to Rs. 7.5 lakhs

10%

20%

Above Rs. 7.5 lakhs to Rs. 10 lakhs

15%

20%

Above Rs. 10 lakhs to Rs. 12.5 lakhs

20%

30%

Above Rs. 12.5 lakhs to Rs. 15 lakhs

25%

30%

Above Rs. 15 lakhs

30%

30%

Rebate under section 87(A)

Tax rebate of 100 percent subject to a limit

of Rs 2,500 available to a citizen whose

total income does not exceed Rs 3.5 lakhs

100% Tax rebate subject to a maximum limit of Rs 2,500 applicable to residents whose total income does not exceed Rs 3,5 lakhs

 

Cess at 4 percent of tax applicable in all cases. Profits surcharge above Rs. 50 lakhs at 10 percent and profits over Rs. 1 crore at 15 percent.

The Rs. 12,500 rebate applies to all wages under the old sales tax system. Whereas, under the current income tax law it is applicable only for income up to Rs. 5 lakhs.

 

 

 

Senior Citizens Tax Slab (age more than 80 years FY 2019-20)

Income range per annum

For FY 2020-21, AY 2021-22 (New Slab)

For FY 2019-20, AY 2020-21

Up to Rs. 2.5 lakhs per annum

No Tax

No Tax

Up to Rs. 5 lakhs per annum

No Tax

No Tax

Above Rs. 5 lakhs to Rs. 7.5 lakhs

10%

20%

Above Rs. 7.5 lakhs to Rs. 10 lakhs

15%

20%

Above Rs. 10 lakhs to Rs. 12.5 lakhs

20%

30%

Above Rs. 12.5 lakhs to Rs. 15 lakhs

25%

30%

Above Rs. 15 lakhs

30%

30%

 

Cess at 4 percent of tax applicable in all cases. Profits surcharge above Rs. 50 lakhs at 10 percent and profits over Rs. 1 crore at 15 percent.

 

New Income Tax Slab for Firms and Domestic Companies FY 2019-20

Tax Head

Firms

Domestic Companies

Income Tax for turnover upto Rs. 400 crores

30%

25%

Income Tax for turnover above Rs. 400 crores

30%

30%

% of income tax charged as Surcharge

in case the total income exceeds

Rs. 1 crore then 12% of tax

In case income is more than Rs. 1 crore but less than Rs. 10 crore then 7% of tax

In case income is more than Rs. 10 crore is 10% of tax

Cess as % of tax and surcharge

3% of tax plus surcharge

3% of tax plus surcharge

 

The table above highlights the most recent tax slabs for corporations and domestic firms. For both cases, the tax status varies from that of individuals and HUFs

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