Direct taxes are those which are paid directly to the government by the taxpayer.
Examples of Direct Taxes In India:
- Income tax.
- Corporate tax.
1. Income Tax
- Income tax is the most common and most important tax that an Indian must pay.
- It is charged directly on the income of a person.
- The rate at which it is charged varies, depending on the level of income.
- It’s charged to individuals, co-operative societies, firms, companies, Hindu Undivided Families (HUFs), trusts and any artificial judicial person.
- Income tax is charged on an income known as “taxable income”, which is Taxable income = (total income) – (applicable deductions and exemptions).
The different heads of income under which income tax is chargeable are:
- Income from house and property.
- Income from business or profession.
- Income from salaries.
- Income in the form of capital gains.
- Income from other sources.
It is levied differently for different people depending on their residency status.
2. Corporate Tax
- Levied on companies who exist as separate entities from their shareholders.
- Foreign companies are taxed on income that arises, or is deemed to arise, in India.
- It is charged on royalties, interest, gains from sale of capital assets located in India, fees for technical services and dividends.
- Includes Minimum Alternative Tax (MAT) which was introduced to bring Zero Tax companies under the income tax net, whose accounts were made in accordance with the Companies Act.
- Incudes Dividend Distribution Tax (DDT) which is a tax levied on any amount declared, distributed or paid as dividend by any domestic company. International companies are exempt from this tax.
- Includes Securities Transaction Tax (STT) which is a tax levied on taxable securities transactions. There is not surcharge applicable on this.