Types of Taxes in India — Explained

Taxes are the backbone of the India’s development. Government imposes taxes to fund critical infrastructure including public education, Defense, Hospitals, Transport etc. India has well developed tax structure which is divided between Central Government, State Government and Local bodies. Every citizen is required to pay taxes at some stage of their life.

This document covers

Objectives of Taxation - Need of Taxation in India
Different forms of taxes

1. Objectives of Taxation - Need of Taxation in India

Taxes are the primary source of funds for Government expenditure. It acts like a Revenue generation
Taxes ensure redistribution of wealth and ensures income inequality between rich and poor by taxing higher income people more.
To manage inflation and maintain fiscal balance through tax policies. Taxes helps in maintaining economic stability.
Taxes on luxury goods and sin products discourage non-essential consumption. Ex; Higher taxes on tobacco with the intention to discourage consumption
Taxes promote Savings, investments by taxpayers. However, with the introduction of new tax regime, it is not valid anymore
Taxes help in Nation building by funding critical infrastructure including public education, Defense, Hospitals, Transport etc.

2. Different forms of taxes

The different forms of taxes are

Direct Taxes ( Income Tax, TDS, Capital gains tax, corporate tax etc)
GST
Customs Duty
Excise Duty
VAT
Professional tax
Stamp Duty and Registration expenses
Electricity duty
Road tax
Property Tax
Water tax
Advertisement tax
Tolls
STT/CTT

S.No	Type of Tax	What (Meaning)	Why (Purpose)	Who is Required to Pay	When to pay	How to pay	Levied by whom	Example	Notes
1	Income Tax or Corporate Tax	Direct tax on income earned by individuals, HUFs, firms, LLP's.	To raise revenue for government expenditure and social welfare.	Any person whose income exceeds Basic exemption limit of 3/4 lakhs. Note: Companies, Firms, LLP's are required to pay taxes on profit irrespective of turnover	Income Tax needs to be paid Annually.(April to March Financial year)	Income Tax can be paid anytime through out the year in the form of advance Tax, tds, self assessment tax	Central Government (CBDT)	A salaried employee with an income of 9 lakhs	Old and New Tax Regime Progressive taxation. Higher the income, higher the taxes
2	TDS (Tax Deducted at Source)	TDS is not a additional tax. It is deducted by the persons who are paying any income to anyone.	To ensure continuous tax inflow and prevent tax evasion.	Employer, Tenant, buyer of property , banks etc are required to deduct	It needs to be deducted at the time of payment	It needs to be paid online and the deductor is required to file 24Q/26Q/27Q/26QB/26QC etc	Central Government (CBDT)	Employer deducts TDS from salary each month.	Reflected in Form 26AS; adjusted in annual ITR.
3	Capital Gains Tax	Tax on profit from sale of capital assets. It is part of income tax	To tax gains from capital appreciation	Anyone selling property, shares, gold, etc	When sale or transfer occurs	Paid via advance tax or ITR	Central Govt (CBDT)	Sale of house after 2 years → LTCG @20% with indexation or 12.5% without Indexation	Exemptions u/s 54, 54EC, 54F for reinvestment can be claimed for LTCG STCG taxes needs to be paid and tax needs to be paid after adjusting losses
4	Corporate Tax	Tax on profits earned by companies	To ensure corporate contribution to revenue for government expenditure and social welfare.	Domestic & foreign companies	It needs to be paid annually	Corporate Tax can be paid anytime through out the year in the form of advance Tax, tds, self assessment tax	Central Govt (CBDT)	Pvt Ltd company earning ₹50 lakh profit pays 25.168% tax	15% for new manufacturing MAT applies in some cases
5	Gift Tax (u/s 56(2)(x))	Tax on monetary or property gifts received without consideration. It is also part of income tax	To prevent money laundering and regulate wealth transfer	individual/HUF if gift exceeds ₹50,000 from non-relatives	Needs to be paid at the time of gift	Declared in ITR under Other Sources.can be paid via advance tax or self Assessment tax through ITR	Central Govt (CBDT)	Receive gift of Rs 1 lakh from friends. Need to pay tax on 1 lakh	Gifts from relatives or on marriage are exempt.
6	STT (Securities Transaction Tax)	Tax on purchase/sale of listed equity shares, MFs on stock exchanges	To ensure transparency and easy collection from financial trades	Traders and investors dealing in equities, mutual funds	Needs to be paid at the time of trade execution	Collected by stock exchange.	Central Govt (CBDT)	Buy shares worth ₹1 lakh → STT @0.1% = ₹100.	STT Cannot be claimed as expense while shwing under capital gains* STT can be claimed as expense if we are showing under business
7	CTT (Commodities Transaction Tax)	Tax on commodity derivatives traded on recognized exchanges	To bring commodity transactions under tax net	Traders/investors in commodity futures	Needs to be paid at the time of trade execution	Collected by commodity exchange	Central Govt (CBDT)	Trade in gold futures ₹5 lakh → CTT @0.01% = ₹50	Applicable on non-agricultural commodity futures
8	GST (Goods & Services Tax)	Comprehensive indirect tax on supply of goods/services	To unify indirect taxes and avoid cascading	Business who are registered under GST	Needs to be paid at the time of supply/invoice/payment whichever is earlier and needs to be paid monthly	Paid via GSTR-3B on GST portal	IGST is levied by Central Govt (CBIC)and CGST/SGST.UTGST is levied by state Govt	Mr Hanu is buying a laptop from a store for personal use. He needs to be pay 18% GST at the time of purchase	GST is a indirect tax and it needs to be collected from the end consumer and needs to be paid
9	Customs Duty	Tax on import/export of goods	To regulate foreign trade & protect domestic industry	Importers/exporters.	Needs to be paid at the time of customs clearance at the time of import of goods	Paid at port via ICEGATE	Central Govt (CBIC)	Mr George imported iphone from USA. He needs to pay import duty	Includes BCD, IGST, SWS; HS code-based rate.
10	Excise Duty	Tax on manufacturing of goods (select items post-GST).	To collect revenue and discourage harmful goods like alochol, tobacco	Manufacturers of petroleum, alcohol, tobacco.	Needs to be paid at the time of manufacture/removal of goods on monthly basis	Paid via monthly return (ER-1).	Central Govt (CBIC)	Petrol manufacturer, dealer in tobacco pays excise	Limited scope after GST (from 2017)
11	VAT (Value Added Tax)	Tax on sale of goods at each stage of production/distribution	To collect revenue from non-GST goods	Dealers in petrol, diesel, liquor	Needs to be paid at the time of intra-state sale (within same state). It needs to be paid monthly or quarterly	Collected & remitted by seller	State Govt	Mr Kuashal has petrol bunk and he needs to pay VAT on petrol, diesel	Not applicable on all products. Still in force for petroleum products & liquor.
12	Professional Tax	Tax on employment, professions, and trades	To fund state welfare & infrastructure	Salaried/self-employed persons/ business	Monthly (salary) or annually (self-employed).	Deducted by employer / self-paid.	State Govt	Bharat is an employee and his employer deducts Professional tax on monthly basis	Professional tax can be allowed as deduction for taxpayers The maximum professional tax per year is rs 2500
13	Stamp Duty & Registration Charges	Tax for registering legal documents like property, gift deed, rental/lease agreements etc	To validate ownership & record transactions. Also to maintain and develop civic ameneties	Buyer / tenant/transferee	At the time of registration or transfer -one time	Needs to be paid at Sub-Registrar via e-Stamp/challan.	State Govt	Ms Seetha wants to purchase a property. She is required to pay stamp duty at the time of registration	Stamp Duty and Registration expenses rates varies for each state
14	Electricity Duty	Levy on electricity consumption	To generate revenue for power infrastructure	Electricity consumers (who uses electricity)	It needs to be paid monthly as per bill	It needs to be paid on state websites, mee seva etc	State Govt	Mr Laxman and his family is residing in hyderabad and they have electricity. They need to pay electricty bill as per billed units	Every house or business should have Electric Meter Rate is Variable for domestic, commercial, industrial.
15	Road Tax (Motor Vehicle Tax)	Tax on purchase/ownership of vehicles.	To maintain roads & transport system	Vehicle owners	It needs to be paid at the time of registration	Needs to be paid to RTO through cash or bank	State Govt / RTO	Mr Krishna purchased a 4 wheeler and he needs to be pay road tax at the time of registration	Road tax will be calculated on the basis of cost, engine capacity, and vehicle type.
16	Property Tax	Tax on ownership of property	To fund local civic amenities (roads, sanitation etc)	Property owners	It needs to be paid Annually	Paid online / municipal office.	Municipal Corporation or local authority	Mr Ram owns a property in Hyderabad. He is required to pay property tax every year	property tax will be calculated based on property area/value/location.
17	Water Tax	Charge for water supply usage & sewage management.	To maintain and operate water supply infrastructure	Residential & commercial users	It needs to be paid Monthly or quarterly as per bill	can be paid through bank in the state websites or at local offices	Muncipalities or state board	Mr Bhim has a water connection and he uses water regularly. He needs to pay as per bill	Rate based on consumption higher for commercial.
18	Advertisement Tax	Tax on display of outdoor hoardings, boards, wall paintings, balloons, slides etc	To regulate use of public space and increase municipal revenue	Advertisers / Agency	It needs to be paid when the advertisers are taking permission from Govt for display of ads	can be paid through bank in the state websites or at local offices	Municipal Corporation or local authority	Prakash ads want to display an ad at Metro. They need to pay advertisement tax	Advertisement tax can be levied based on display area or Sq ft or duration
19	Tolls (Highway/Bridge Tolls)	It is a fees levied for usage of specific roads, highways or bridges	To recover cost of construction, maintenance and development	All vehicle owners or drivers who are using such facility	It needs to be paid every time the vehicle passes Toll plaza	can be paid via FASTag / bank/cash	NHAI for National highways and State Govt for state highways	A person travelling through car via Hyderabad outer ring road	Toll taxes depends on type of vehicles, road length, type of roads Tolls are exempted for emergency vehicles