Taxation and GST Basics

Benjamin Franklin once said “In this world, nothing can be said to be certain, except death and taxes.”  This tutorial primarily focuses on the basics of taxation, types of taxes – Direct and Indirect taxes, history of GST, benefits and challenges, GST Model, and threshhold limit and exemptions. The primary objective of the GST tutorial is to enhance and upscale the performance of the candidate based on the given topics.

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What is Tax?

A tax (from the Latin taxo) is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state to fund various public expenditures. A tax is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority” and is any contribution imposed by government whether under the name of toll, tribute, impost, duty, custom, excise, subsidy, aid, supply, or other name.

What is taxation?

Taxation refers to the act of laying a tax, or of imposing taxes, as on the subjects of a state, by government, or on the members of a corporation or company, by the proper authority; the raising of revenue; also, a system of raising revenue.

Taxation in India

The history of Income-Tax in modern India dates back to 1860 when the first Income Tax Act was introduced by James Wilson who became (British) India’s first finance member. First Income Tax Act came in force on 24th July 1860 with the approval of The Governor General. It was a tax selectively imposed on the rich royalty and Britishers. For the first year of tax the government collects Rs 30 Lakhs.

Broadly, there are two types of Taxes viz. Direct and Indirect taxes. Taxes in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such as Municipality or Local Council. The authority to levy tax is derived from the Constitution of India which allocates the power to levy various taxes between Centre and State.

Direct and Indirect Tax

Indirect Tax

Indirect taxation is policy commonly used to generate tax revenue. Indirect tax is so called as it is paid indirectly by the final consumer of goods and services while paying for purchase of goods or for enjoying services. It is broadly based since it is applied to everyone in the society whether rich or poor.

Direct Tax

A direct tax is one imposed upon an individual person (juristic or natural) or property (i.e. real and personal property, livestock, crops, wages, etc.) as distinct from a tax imposed upon a transaction. In this sense, indirect taxes such as a sales tax or a value added tax (VAT) are imposed only if and when a taxable transaction occurs.

 

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