Context:
With Budget 2025 around the corner, tax experts and taxpayers alike have high expectations regarding direct taxes.
Tax System in India:
- Mandatory financial charges or levies imposed by the government on individuals, businesses, or property to fund public services and operations.
- There is no direct exchange (quid pro quo) between the taxpayer and the public authority.
- Types of Taxes –
- Direct Taxes: Paid directly by individuals or entities to the government and cannot be transferred to others.
- Indirect Taxes: Levied on goods and services, collected by intermediaries from consumers at the point of sale, and remitted to the government.
- Other Taxes: Levied for specific purposes, often funding infrastructure or welfare programs.
Direct Taxes:
- Income Tax: Imposed on income, progressive in nature with different slabs for various taxpayer categories.
- Capital Gains Tax: Tax on gains from investments, with different rates for short-term and long-term holdings.
- Securities Transaction Tax: Tax on transactions involving securities in the stock market.
- Perquisite Tax: Tax on benefits provided by an employer to employees (e.g., housing, cars).
- Corporate Tax: Tax paid by companies on their earnings, with different slabs for various income levels.
- Minimum Alternative Tax (MAT): Ensures companies pay a minimum tax, set at 18.5%.
- Fringe Benefit Tax (FBT): Tax on non-cash benefits provided by employers (abolished in 2009).
- Dividend Distribution Tax (DDT): Tax on dividends paid by companies.
- Banking Cash Transaction Tax: Tax on banking transactions (abolished in 2009).
Indirect Taxes:
- GST: A consumption-based tax on value-added goods and services (ad valorem tax), levied at each stage of the supply chain.
- Regressive as it is imposed at the same rate on all individuals irrespective of income.
- Value Added Tax (VAT): Tax on goods sold, applied at each stage of the supply chain.
- Imposed on goods excluded from the GST regime like alcoholic beverages and petroleum products.
- Custom Duty & Octroi: Taxes on imported goods (Custom Duty) and on goods crossing state borders (Octroi).
- Excise Duty: Tax on goods manufactured within India.
Other Levies (Cess):
- Education Cess: A 2% tax to fund educational initiatives like developing classrooms, libraries, and providing scholarships.
- Swachh Bharat Cess: Introduced in 2015 to fund cleanliness initiatives like the Swachh Bharat Mission.
- Krishi Kalyan Cess: Introduced in 2016 to support agricultural welfare like irrigation projects and subsidized seeds.
Source: Financial Express
Previous Year Question
Consider the following items:
1. Cereal grains hulled
2. Chicken eggs cooked
3. Fish processed and canned
4. Newspapers containing advertising material
Which of the above items is/are exempted under GST (Good and Services Tax)?
[UPSC Civil Services Exam – 2018 Prelims]
(a) 1 only
(b) 2 and 3 only
(c) 1, 2 and 4 only
(d) 1, 2, 3 and 4
Answer: (c)
Explanation:
Fish, crustaceans & other aquatic invertebrates in processed, cured or frozen state are taxable at 5% rate under GST.
