Indian Tax

By: EconomyWatch Content Team   Date: 30 June 2010

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When it comes to tax structures, India is known for having a well-developed system.  For the India tax system, three tiers exist, a structure based between organizations within the local government, as well as central and state governments.  In addition, municipalities and local councils are included in the structure of the tax system.  The way this system is designed, officials have the right to levy individual and business taxes.  However, taxes can only be levied or charged by authorities of the Indian law.  This means no matter the specific type of tax, it must be in alignment with the parliament or legislature.

The primary body associated with the India tax system is the Central Board of Direct Taxes or CBDT.  This entity has the responsibility of collecting taxes and falls under the Ministry of Finance in the Department of Revenue.  All functions set and enforced by this body are in line with the Central Board of Revenue Act of 1963.  Typically, this body levies income tax, as well as services tax, central excise duties, and a number of other direct tax types such as the following:

•    Corporate Income Tax – Under the India Income Tax Act, business organizations and companies in this country are taxed on income that comes from transactions all over the world.  However, for non-resident business organizations or companies, tax is levied on income earned from transactions occurring within the country or through other Indian sources.
 
•    Personal Income Tax – This body also has the responsibility of levying personal income tax, which is administered, as well as monitored by this entity under rules of the Income Tax Act.

•    Capital Gains Tax – India’s central government also taxes capital gains that come from sale of assets.  If these assets are maintained longer than three years or if shares and securities are listed under any of the recognized Indian stock exchange then tax would be charged for long-term capital gain.

Another part of the India tax system has to do with indirect taxes.  The types included in this case include:

•    Excise Duty – Provisions under the Central Excise Act of 1944, as well as the Central Excise Tariff Act of 1985 include a 16% charge although there are instances when an additional 8% is charged.
 
•    Customs Duty – This falls under the Customs Tariff Act of 1975 and the Customs Act of 1962, which means imported goods are taxed.

•    Service Tax – Typically, the service tax levied on services is at 10%

The India tax system also includes state taxes, such as those listed below:

•    Sales Tax / VAT – Sale of movable goods usually have a sales tax attached but after April of 2005, this was changed so the Value Added Tax or VAT is charged.  In this case, only goods are taxed instead of goods and services.
 
•    Miscellaneous – Some of the other taxes that fall under the India tax system for sales tax includes Stamp Duty on Asset Transfer, Agriculture Income Tax, Property/Building Tax, and Octroi/Entry Tax


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