Direct taxes are those which are paid directly to the government by the taxpayer. These taxes are not paid deducted and paid on behalf of the taxpayer. It’s imposed on the people and organizations directly by the government. This tax liability has to be paid by the taxpayer in question and cannot be transferred to any other entity for payment.
Direct taxation in India is overseen by the Central Board of Direct Taxes or the CBDT, which was formed as a result of the Central Board of Revenue Act, 1924. The CBDT is a part of the Department of Revenue in the Ministry of Finance and is responsible for the administration of the direct tax laws. It also provides inputs and suggestions for policy and planning of the direct taxes in India.
What is Direct Tax Code?
In a move to establish a more efficient, effective and equitable direct tax system, the Direct Taxes Code or DTC has been drafted to replace the existing Indian Income Tax Act of 1961. It aims to consolidate and amend all laws relating to the direct taxes in order to facilitate voluntary compliance and increase the tax-GDP ratio. With its 319 Sections and 22 Schedules, the DTC aims to replace the old Income Tax Act and provide a more stable, efficient and overall better code for taxation incorporating the best taxation principles and proven international practices.
The Direct Tax Code Explained With Examples:
The DTC is explained in this section by delving into its key features. Key examples of DTC are income tax, corporate tax, wealth tax and Capital Gain Tax. These are explained in detail below.
Direct taxes come in many shapes and forms. All of the below-mentioned tax headings have two things in common – they are imposed directly and apply to every Indian citizen.
The different heads of income under which income tax is chargeable are:
It is levied differently for different people depending on their residency status.
The following will not be taxed as they are “working assets”:
In India, Income Tax is charged according to slabs which outline the details for different tax rates for different levels of income.
For individual residents under 60 years of age:
Income Slabs | Tax Rates | |
---|---|---|
Taxable income under Rs.2,50,000. | NIL. | |
Taxable income between Rs.2,50,000 and Rs.5,00,000. | 10% of the amount by which the taxable income exceeds Rs.2,50,000. Less: Tax Credit u/s 87A – 10% of taxable income (up to a maximum of Rs.2,000). |
|
Taxable income above Rs.5,00,000 and Rs.10,00,000. | Rs.25,000 plus 20% of the amount by which the taxable income exceeds | |
Taxable income above Rs.10,00,000. | Rs.1,25,000 plus 30% of the amount by which the taxable income exceeds Rs.10,00,000. |
For individual residents between 60 and 80 years of age:
Income Slabs | Tax Rates |
---|---|
Taxable income under Rs.3,00,000. | NIL. |
Taxable income between Rs.3,00,000 and Rs.5,00,000. | 10% of the amount by which the taxable income exceeds Rs.3,00,000. Less: Tax Credit u/s 87A – 10% of taxable income (up to a maximum of Rs.2,000). |
Taxable income between Rs.5,00,000 and Rs.10,00,000. | Rs.20,000 plus 20% of the amount by which the taxable income exceeds Rs.5,00,000. |
Taxable income above Rs.10,00,000. | Rs.1,20,000 plus 30% of the amount by which the taxable income exceeds Rs.10,00,000. |
For Individual residents above 80 years of age:
Income Slabs | Tax Rates |
---|---|
Taxable income under Rs.5,00,000. | NIL. |
Taxable income between Rs.5,00,000 and Rs.10,00,000. | 20% of the amount by which taxable income exceeds Rs.5,00,000. |
Taxable income above Rs.10,00,000. | Rs.1,00,000 + 30% of the amount by which taxable income exceeds Rs.10,00,000. |
*Amounts invested in certain specific investments like EPF, PPF, NSC, Tax Saving FDs, etc. are eligible for deductions under Section 80C up to Rs.1,50,000 per year.
For domestic companies:
For international companies:
Minimum Alternative Tax (MAT) is presently charged at 19.05%.
Dividend Distribution Tax (DDT) is charged at a rate of 16.995% on declared dividends.
Capital Gains Tax.
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