Direct Taxes are those which are paid directly by the taxpayer based on underlying income which is liable under the particular Act or Rules. In such cases, the taxpayer is required to
Calculate the income liable to tax
Calculate the tax payable based on TDS, TCS etc.
File the return showing income and tax related details
Respond to tax notices etc.
These all activities can be performed by the taxpayer himself or can be outsourced to tax consultant. However, these activities need to be performed by or on behalf of the taxpayer. Direct taxes are governed by the CBDT (Central Board of Taxes). Let’s see what all is covered under Direct Taxes.
Most commonly known Direct Tax is Income Tax. Common taxpayer are well aware of the imposition of Income Tax on the income. However, Income Tax is subdivided under many subheads which are as below
- From salaries
- From House Property (includes loss as well which may be in the nature of interest on housing loan)
- From Business or Profession
- From capital gains (includes both short term and long term capital gains)
- From other sources (includes bank interest and any other income which is not covered under other heads)
- TDS (Tax Deducted at Source)
- TCS (Tax Collected at Source)
- Relief from Tax Payable etc.
It is important to note that anyone who earns taxable income above the basic exemption limit as applicable for the year, would be liable to file Income Tax Return and pay the tax.
Must Read :- COMMON TAXES THAT A COMMON MAN PAYS IN INDIA TODAY
NO LONGER APPLICABLE FROM YEAR 2016-17 ONWARDS.
Capital Gains Tax
This is part and parcel of the Income Tax. The reason to list it as a separate item, is that the rates for taxing the capital gain differ depending upon the type of capital asset which is transferred or sold. There are two types of gains which are
Capital gains can be exempted, however there certain conditions for e.g. if any residential property is sold and the taxpayer arrives at Long term capital gain, then it can be exempted if the proceeds are invested to buy new residential property.
Corporate Tax refers to income Tax levied on the income earned by the corporates i.e. companies. Corporate Tax includes usual Income Tax as well as MAT (minimum Alternate Tax). Even MNC’s are subject to Corporate Tax. Corporates are also required to comply with tax formalities like payment of TDS, payment of advance taxes and filing of ITR etc.
MAT (Minimum Alternate Tax)
This is applicable only for the companies or corporates, which is equal to 18.5% of book profits (book profits refer to net profit which is adjusted for various items like provision for deferred tax or provision for bad debts etc.). This is part of corporate tax but is calculated separately than usual income tax calculation. Hence, there will be always two computations of income and tax for corporates – one would be as per Income Tax normal provisions and another would be as per MAT provisions. The company is supposed to pay tax on higher of those two income and tax computations.
DDT (Dividend Distribution Tax)
DDT is applicable on dividends paid by the corporates to the shareholders. This is paid on the dividends before they are distributed hence, this dividend will be exempt in the hands of the receiver i.e. shareholders. DDT is paid @ 15% and education cess and other surcharge is applicable on the same. The domestic companies are only liable to pay DDT and even in the event of non-taxability of net profits or book profits, DDT must be paid on dividends distributed.