Direct Tax

Income Tax

• Income Tax is levied on the income of individuals, HUFs, partnership companies, LLPs, registered companies, tax-exempt trusts, and AOPs/BOIs;
• Taxable Income calculation is simplified to Gross Total Income - Exemptions – Deductions
• There are five classes of income defined in taxable income the following: Salary, House Property Income, Business/Profession Income, Capital Gains Income, Other Income
• Types of Income Taxes are as follows:
  • Personal Income Taxes may be payable by individuals, HUFs, households etc under the Income Tax Act 1961
  • Corporate Income Tax (or Corporate Tax) is the tax imposed on the profits of a company registered in India and applies to both domestic and foreign companies operating in India; and the tax rate is established in the Finance Act introduced each year.

The Minimum Alternate Tax (MAT)

These taxes 'Zero Tax companies,' which are companies that generate profits but are taxed at a rate of 0% based on their tax exemptions. Companies must pay MAT or pay Corporate Tax (the greater of the two) as per the relevant MAT provisions. Zero Tax companies are companies that generate profits and pay dividends; therefore, they are considered to be in a position where they have profits. However, they are able to avoid tax liability on their profits due to the use of tax deductions, depreciation, and various other tax provisions.

The Alternate Minimum Tax (AMT)

This is a tax similar to MAT, but it applies to noncorporate taxpayers, i.e. Partnership Firms, Limited Liability Partnerships (LLPs), Individuals and Hindu Undivided Families (HUFs) that carry on business and that meet specific conditions.

Capital Gains Tax (CGT)

It is collected by a tax levied on profits derived from the sale of capital assets. Capital assets include all types of Land, Buildings, Home Properties, Motor Vehicles, Machinery, Patents, Trademarks, and Jewellery. Stocks or shares held for trading purposes and Agricultural Land lying outside the geographical limit of a notified area do not qualify as Capital Assets. Personal possessions such as art and jewellery are excluded from insurance coverage. There are two kinds of Capital Gains:

• Short-Term Capital Gains ("STCG"), which are derived from asset holding periods of less than or equal to thirty-six months (the holding period varies by capital asset)
• Long-Term Capital Gains ("LTCG"), which arise from asset holding periods of more than thirty-six months.

The Securities Transaction Tax (STT)

This is a tax on the purchase and sale of listed stocks and shares (Or shares listed) and other Equity Mutual Funds, as well as Stock Futures. STT was introduced in 2004 to prevent tax evasion through capital gains tax.

Dividend Distribution Tax (DDT)

Before the Dividend Distribution Tax (DTT) was eliminated from the tax system, companies were required to pay tax on their dividends before distributing dividends to their shareholders. As of 1 April 2020, tax on dividends paid by companies has been abolished, and all dividends received by shareholders are now subject to tax.

Wealth tax

This tax is levied against an individual’s net wealth, as well as the net wealth of Hindu Undivided Families (HUF), companies. The Wealth Tax was replaced with a surcharge levied on very wealthy individuals.

Banking Cash Transaction Tax (BCTT)

This tax was introduced in 2005 as a tax on cash withdrawals exceeding a certain amount, but it was abolished by the government in 2009. Although it was suggested once again in 2017, the government has not repopularised it since that time.

Professional Tax

The professional tax is a state-level tax imposed on several categories of income earned from a profession, including those who work as lawyers, doctors, Certified Public Accountants (CPAs), salaried people, etc. This tax can be up to Rs. 2500 per year.

Digital Tax/Equalisation Levy (Google Tax)

This tax is imposed on digital companies, including Google, Meta, and Amazon, that have no physical presence in the country where they operate but still earn revenue from customers in that country. This tax is aimed at addressing BEPS (Base Erosion & Profit-Shifting).