Tax Laws of India

A tax is any mandatory financial burden or any sort of levy imposed upon a taxpayer by some governmental body in order to finance public expenditure and government spending. The tax rate is usually fixed by the government and increases with inflation. evasion of or refusal to pay tax, and therefore, evasion, is punishable by criminal law. This law is extremely complex and any one who is found guilty stands the risk of heavy punishment. Taxation is basically a proportioning process of income versus expenditure. A tax on a commodity is deemed to be proportional to the value of the commodity in terms of its price in money.

The basic concept of the regressive taxes is based on an income distribution model wherein taxes are given according to the net income of individuals. A high-income individual pays a comparatively lower tax because he has a bigger wealth and spends more on expenses. A medium-income earner pays a slightly higher tax because his income is spread among many families and he is not exposed to the erratic fluctuations in prices. A low-income earner faces the highest risk in the regressive tax system as he loses his total asset value, gets no allowance for capital gains, and thus has to make up for this loss through higher taxes. Thus, a high-income person buys a bigger car or goes for a vacation, while a low-income person would go hungry and live from hand-to-mouth.

There are two basic types of indirect taxes: direct and indirect. A tax on an sale is called a direct tax while a tax on an activity or facility is known as an indirect tax. Examples of indirect taxes are sales tax, value-added tax, and property tax. A tax on the production of goods is called a direct tax while a tax on the transfer of income is called an indirect tax.

Direct taxes are normally levied against the production, sale, distribution, consumption, and income of a nation. The levy is generally levied by the government. Government levies can be general tax that is imposed to all citizens or may be specified to certain classes of citizens. General tax revenues collected from broad strata of society are known as regressive tax and are expected to be adjusted for inflation.

On the other hand, indirect taxes are levied according to the performance of the economy. Indirect tax on transfers of income are termed as delayed tax payment. A creditor’s interest is charged on delayed payment. A manufacturer’s tax is charged on the difference amount between the price paid for a product and the price normally paid by consumers for the same product. Similarly, a exporter’s tax is charged on the difference amount between the price received for selling a particular item sold within and outside the country and the price normally paid by consumers for the same item sold within and outside the country.

In addition to income, individuals and businesses are also taxed on estate and gift tax. This tax, though imposed on different classes of people, has traditionally been charged on the basis of wealth. As on date, there are no formal limits on the amount of wealth which may be transferred to your heirs without having to pay the inheritance tax. However, some estates in India may be subjected to certain limitations on the transfer of wealth by gift.