When it comes to taxes levied on individuals or organisations, there are two broad types of taxes. On the one hand you have taxes that are levied by the central government and on the other, those levied by the state government. The taxes that are levied by the state government are also governed and collected by them and can differ from one state to another. A simple example of this occurrence can be seen in the cost of certain things in various states. If you look at the prices of fuel for example, while the broad range of the cost per litre of petrol or diesel tends to be the same across the country, there can be a difference of a few rupees between different states owing to the tax levied by each state on the sale of petrol and diesel.
Types of Taxes Collected by the State Governments
There are two types of taxes that the state government is tasked with collecting.
- Taxes levied by the central government
Sometimes certain taxes are announced and levied by the state government and the responsibility of collecting them is with the state government. In many cases the money collected is also not kept with the state government but remitted to the centre.
There can be variations within this type of tax too and some of the variations can be:
- Taxes levied by the central government but collected and kept by the state government.
- Taxes levied and collect by the central government but the money collected is given to the state government.
- Taxes that are levied and collected by the central government but split between the centre and the state.
- Taxes levied by the state government
Taxes that are levied by the state government are the ones on which they have the freedom to decide the amount of taxation. These taxes are levied, collected and retained by the state government. These are the taxes, the rates of which tend to differ from one state to another and have, as their most common example, the VAT.
Taxes Levied by the State
These are some of the taxes that are levied or collected by the state government.
- Sales Tax and VAT:
Before 2005, the tax that was levied by the state on the sale of various products was known as the sales tax. Post 2005 the VAT or Value added tax was introduced on the sale of goods. The VAT is decided by each state and collected by merchants by transferring the tax onto the consumers. How VAT is decided is by dividing the goods sold in the state into various categories and the highest rate is assigned to goods that fall under none of the defined categories. Based on the VAT on unclassified goods, these are 5 states with the highest taxation.
|State||VAT on unclassified good|
- Professional Tax:
Professional tax is another tax that is determined, levied and collected by the state government. Since it is a state government prerogative, this tax too is different for each state. The tax has to be paid by anyone who earns an income through a profession. An example of this would be doctors, engineers, those working for IT companies, etc. The tax is calculated on the annual income of the individual and paid every month. It can also be paid once a year if the individual so choose and is calculated based on the income slab. Some states charge it based on monthly incomes and others on the annual income. There are also some states that don’t charge PT
|Karnataka||Rs. 15,000 per month or less: Nil
Rs. 15,000 per month or more: Rs. 200 per month.
|Maharashtra||Up to Rs. 7,500 per month: Nil
Rs. 7,500 to Rs. 10,000: Rs. 175 per month
Rs. 10,000 and above: Rs. 200 per month
|Madhya Pradesh||Up to 1,50,000 per annum: Nil
Rs. 1,50,001 to Rs. 1,80,000: Rs. 125 per month
Rs. 1,80,001 and above: Rs. 212 per month
|Delhi||Nil but a proposal has been made to charge it for those with a monthly income of Rs. 30,000 and above.|
- Stamp Duty:
Stamp duty is a tax that is paid on official documents like marriage registrations or documents related to a property, etc. The amount of stamp duty that is due on a document depends on the value of the transaction for which the documents are being created. The stamp duty can be paid in two ways, the first being by using documents that have a stamp embossed on the top of the paper and the other is by affixing a stamp to an official document. The advantage of using these papers is that documents that have stamp duties paid on them can be admitted as evidence in a court.
- Luxury Tax:
Luxury tax is a tax that is charged by hotels or establishments providing accommodation. The tax is calculated based on the price of the rooms announced by the establishment. Most state governments announce a table that determines the amount of tax that is to be charged. Certain governments can even levy this tax on facilities that citizens use for recreation or relaxation like gyms, personal trainers, banquet halls etc.
For example, in Gujarat the luxury tax is determined based on the following structure:
- If the price of the room is up to Rs. 200 per night then no tax is charged.
- If the price of the room is between Rs. 200 and Rs. 400 the tax is 7.5%
- If the price of the room is between Rs. 400 and Rs. 600 the tax is 10%
- If the price of the room is more than Rs. 600 per night, the tax is 15%.
- Entertainment Tax:
Entertainment tax is a duty that is charged by the government on any source of entertainment provided. This tax can be charged on movie tickets, tickets to amusement parks, exhibitions and even sports events. The rate, being a state government tax, differs from one state to another with some states not even charging the tax. The amount of tax applicable can depend on factors like type of entertainment and seating capacity of the establishment providing the entertainment.
These are some of the states that charge entertainment tax:
|State||Entertainment Tax Charged|
|Karnataka||30% (None for Kannada movies)|
|Maharashtra||45% (None for Marathi films)|
- Motor Vehicles Tax:
This is a tax that is levied on the sale of motor vehicles in a state and is influenced by factors like the segment the car belongs to, the capacity of the engine of the car, the capacity of the car to carry people and certain other factors. This tax can also be, at times, referred to as the road tax but is actually a collection of other elements as well. The road tax can be paid in two ways, the first being an annual payment and the second being a lump sum, one time payment also referred to as lifetime road tax. The second option is the more popular choice since it means that vehicles owners will be subject to pay road tax for a vehicle only once during their ownership of the vehicle.
- Tax on Vehicles Entering State:
This is a tax that is levied on vehicles that enter a state that they are not registered in. In such cases, the vehicles are bought in one state and are operated in another and when they enter the state, they have to pay a tax for entering the state.
- Transportation of Passengers and Goods Tax:
When a public vehicle carrying goods or people from one state to another, it is required to pay a tax when it crosses the border from one state to another. This is known as the tax on transportation of goods or people.
- Tax on Agricultural Income:
This is a tax that is levied on income received in any way from land that is declared agricultural land. This income can come from the growing and selling of crops or even from the renting out of a building that is on agricultural land. The main clause that applied to this income is that the income gained should be done so from an activity related to agriculture. If urban land is used for the purpose of agriculture or related activities, the income will also be deemed to be agricultural income and the state government has the power to collect, remit or even exempt this tax.
- Tax on Land and Buildings:
This is a tax that is levied on the ownership of either vacant plots of land or plots of land with buildings on them. The tax is calculated based on the value of the property and can include taxes such as water and drainage tax, lighting tax and scavenging tax. The tax needs to be paid for all land and buildings unless that come with specific exemptions announced by the government.
- Capitation Taxes:
While most taxes are decided either based on the income an individual earns or on their worth, this is a tax that is free of these two factors. It is a tax that is determined by the government and not based on income or worth of the individual.
- Tax on Mineral Rights:
This is a tax that can also be referred to as the Cess and other taxes on minerals and is a tax that is collected by the state government based on an act passed by the central government.
How to Pay State Taxes?
With the popularity of the internet and online services growing, even the government bodies have made sure that they have provided citizens with the opportunity to pay taxes online. This is also the case when it comes to payment of taxes owed to the state. The state governments of almost all states in India have created websites that are dedicated to the governance of the state. These websites also provide people with portals that allow them to pay their taxes online through said portals. If the tax assessee is unable to make these payments online they also have the option to download the appropriate forms and file the taxes at designated offices and banks designated by the state government.
Penalty for Not Paying State Taxes
The penalty for not paying various taxes depends on the tax that has not been paid. These penalties too can be subject to differences based on the state. In most cases these penalties amount to the charging of an amount which is to be paid by the assessee in addition to any tax that they already owe to the government. For example:
- If an establishment fails to pay the luxury tax in Tamil Nadu then they will have to pay the tax that is owed along with a penalty that can be a maximum amount of 1.5 times the tax due.
- If an establishment fails to pay the VAT in the state of Karnataka, then the penalty charged can be the payment of in interest on the tax owed to the government. This interest will be charged at a rate of 1.5% of the amount due, every month.
- In the case of professional tax, if an employer fails to deduct PT, in Karnataka, then they will have to pay an interest 1.25% per month on the amount due. In addition to this interest rate, the government can also charge a penalty amount of up to 50% of the tax due to be paid along with the interest and the tax due. These penalties apply to individuals who pay their PT individually too.