Income tax is imposed by the government on incomes generated by businesses and individuals within their jurisdiction. By law, taxpayers must file an income tax return annually to determine their tax obligations.
In other words , it is a tax paid by individuals or entities depending on the level of earnings or gains during a financial year. The earnings may be both actual and notional. The Government of India decides the rate of income tax as well as income tax slabs on which individuals are taxed. Those under higher income slabs are taxed at higher rates. The taxable income slabs are changed from time to time, keeping in mind the price levels.
Taxes can be classified as Direct and Indirect tax. Direct taxes refer to the taxes that are imposed on the property and income of people and are directly paid by consumers to the government. In case of direct taxes , the liability to pay the tax lies on the same person. Indirect taxes refer to those taxes where liability to pay and the burden of the tax lies on different persons.
Types of income tax
#1 Wealth tax
It is a type of direct tax that you are required to pay if you own any kind of property, irrespective of whether your property is earning any sort of income. Wealth tax is levied on individuals, companies, HUFs (Hindu Undivided Families) and the tax liability is as per the residential status.
#2 Corporate tax
As per the IT Act of 1961, national as well as international corporate organisations are required to pay corporate tax. This tax is levied on domestic companies that exist as separate entities from the shareholders. Even the foreign companies that earn or are deemed to earn income in India are required to pay corporate tax. The corporate tax also includes other income tax types such as FBT (Fringe Benefits Tax), MAT (Minimum Alternative Tax), STT (Securities Transaction Tax), and more.
#3 Capital gains tax
It is imposed on any income that is derived from the sale of assets or investments. This includes property, cars, machinery, businesses, art, bonds, and shares. It applies to individual taxpayers as well as businesses. Depending on how long you held the asset, you will be required to either pay short-term capital gains (STCG) tax or long-term capital gains (LTCG) tax.
Hope this will help you in managing your taxes better!