For the sixth consecutive year, Union minister Nirmala Sitharaman is set to present the Budget for the fiscal year 2024-25 on February 1. This presentation will be an interim Budget due to the impending Lok Sabha elections this year. The complete budget for the fiscal year 2024-25 will be introduced after the formation of the new government.
Before this year’s Budget presentation, try understanding what constitutes a direct tax and who needs to pay it.
A direct tax refers to a tax where the individual or organisation directly pays the government without intermediaries. It is imposed and directly paid by the individuals or entities it applies to. Examples of direct taxes include income tax, real property tax, personal property tax, and taxes on assets. These taxes are paid by the taxpayer directly to the government.
Difference between direct and indirect taxes
A direct tax is the opposite of an indirect tax, wherein the tax is levied on one entity, such as a seller, and paid by another – such as a sales tax paid by the buyer in a retail setting.
Direct taxes cannot be shifted to another party and remain your responsibility to pay. Indirect taxes are the opposite. Whoever is liable for these taxes can pass on or shift them to another person or group
Here are some types of direct taxes
Income Tax: Income tax payments are based on an individual’s age and earnings, with various tax slabs set by the government to determine the amount owed. The taxpayer is required to file Income Tax Returns (ITR) annually, possibly resulting in either a refund or a payment based on the return. Failure to file ITR can lead to significant penalties.
Wealth Tax: This tax, paid yearly, hinges on property ownership and its market value. Owning property incurs wealth tax, irrespective of whether it generates income. Corporate taxpayers, Hindu Undivided Families (HUFs), and individuals are subject to wealth tax based on their residential status. However, certain assets like gold deposit bonds, stock holdings, and properties rented for over 300 days, among others, are exempt from wealth tax.
Estate Tax: Also known as Inheritance Tax, it’s paid based on the value of an individual’s estate or remaining assets after their death.
Corporate Tax: Domestic companies and foreign corporations earning income in India are liable to pay corporate tax. Income from asset sales, technical service fees, dividends, royalties, or interest based in India is taxable. Corporate tax includes other levies such as Securities Transaction Tax (STT), Dividend Distribution Tax (DDT), Fringe Benefits Tax, Minimum Alternate Tax (MAT), and Capital Gains Tax.
Capital Gains Tax: Paid on income gained from the sale of assets such as farms, bonds, shares, businesses, art, and homes, categorised as capital assets.