Taxation Laws In India – Must Know!

Indian tax system is divided into two parts which is Direct taxes and Indirect Taxes. Direct Taxes are those which are paid by the taxpayer directly to the government in the form of TDS, TCS, or advance tax etc. Indirect Tax is where the tax is collected from the ultimate taxpayer and is paid back to the government treasury. This article will explain concisely the most important tax laws which everyone must know.

Income Tax

Income tax is the most commonly known direct tax. Every person whose taxable income (gross income reduced by deductions and exemptions) is above the basic exemption limit, is required to file ITR for declaration of income. For filing ITR, one must get together every income accruing or arising to the taxpayer, which is taxable under each source as mentioned below.

  • Income under the head salaries (generally form 16 is received by taxpayer if the salary income is above the basic exemption limit)

  • Income under the head House Property (house property can be self occupied, rented or deemed to be rented)

  • Income under the head Business or Profession (includes presumptive taxation)

  • Income under the head Capital Gains (includes long term and short term capital gain which arises on transfer or sale of capital asset)  

  • Income under the head Other Sources (covers any other income which is not taxed under any other heads)

Income tax law specifies certain deductions against gross income for e.g. section 80C deduction is for investment in tax-saving instruments, Section 80D for mediclaim (health insurance etc.). Besides, there are certain exemptions like LTA (Leave Travel Allowance) exemption etc. which exempt allowances to the extent as allowed under the Act. If your tax payable is more than tax credit (in the form of TDS, TCS and taxes already paid), the tax is required to be paid and then ITR is to be filed. Otherwise, if tax refunds applicable, taxpayer should file the ITR claiming for refund of tax paid in excess.

Commonly known as Direct Tax

GST (Goods and Services Tax)

GST is indirect tax which has subsumed all other indirect taxes other than Customs duty. This tax is levied on goods as well as on services. GST is considered to be most unique since it has taken off load of double taxation since GST paid on goods and services purchased would be eligible to be adjusted against GST liability on goods and services sold. This will reduce the ultimate price paid by the final consumer.

GST has minimalistic human interference and hence is actually said to be most taxpayer friendly and transparent tax structure. However, GST has prescribed lots of compliance formalities like registration, monthly GST payment and GST returns. GST was rolled out on 1st July 2017 and is applicable henceforth on every goods and services as per GST rates specified. GST rates have divided goods and services between 0%, 5%, 12%, 18% and 28% and also has rendered some of the goods and services out of purview of tax.

Understanding the GST


STT (Securities Transaction Tax)

STT is levied on sale and purchase of shares which are listed on stock exchange. STT is charged on every sale and purchase of shares, mutual funds, futures and options. STT can be claimed as expenses incurred for transfer while calculating capital gains on sale of these assets like stock, mutual funds etc. STT can be ascertained on the contract note which is generated after the transaction is squared off for the day.

Impose a tax on sale and purchase of shares

Customs Duty

Customs duty is the only indirect tax which is not substituted by GST and is imposed on imported goods brought inside India. Customs duty is levied at specific percentage or ad valorem basis. Customs duty is sometimes levied on goods exported out of India also. Customs Act has various provisions with respect to valuation of goods, tax rates, exemptions or exclusions, penalty etc. Sometimes, customs duty may be found in the nature of tax levied to encourage exports and discourage imports to save on foreign exchange. There are many types under customs duty like Basic Customs Duty, Additional Customs Duty etc.

The only Indirect Tax

Stamp Duty

Stamp Duty is tax which is payable on the transfer or sale of immovable property and is levied on or after the sale of property takes place. It is mandatory to pay stamp duty on property sold or purchased on the value as mentioned under the sale agreement. Stamp Duty is state levy which is not replaced or subsumed by GST, so every sale of immovable property is still covered under Stamp duty Act. Unless stamp duty is paid , the property does not get transferred in the name of the buyer and hence it is mandatory to pay the stamp duty in full to avoid any further action and penalty leviable in case of default.

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