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Tax Concept: Explore the Basics and More of Taxation System! 

Tax is a very important part of our financial lives. Paying taxes is a very important part of being a responsible citizen. So, while you must have a good knowledge of the tax concept, it becomes imperative for everyone to pay the tax on time. However, in this article, we will be decoding everything about tax concept and more. So, keep reading this article to learn more about the concept of tax.

What is Tax?

Before we delve deep into revealing everything about the tax concept, let me give you a brief about the taxation system. Tax is basically the memebreship fees which are paid for residing in India or any country. These are the funds which are used for preserving society as a whole. If you are someone who is residing abroad then you will be needed to pay additional tax for your abroad residence.

Now that you have got a good understanding of the tax concept. Head to the next section of the article to explore the types of tax.

Types of Taxes:

There are two types of taxes that is followed in the tax concept. These are basically direct and indirect tax. Not only these are the only types of taxes but there are also other minor cess taxes that fall into different sub categories. You will find that within the Income Tax Act, you will be getting different acts which will be governing these.

Now let us have a more closer look at these types of taxes in the tax concept.

Direct Tax:

This is a type of tax in the tax concept which are directly paid by the individual to the government or any legal entity. Direct taxes are overlooked by the Cental Board of Direct Taxes (CBDT). Another thing to keep in mind about this type of tax in the tax concept is that these taxes cannot be transferred to any individual or any legal entity. There are two different sub categories of Direct tax.

Income Tax:

If you are looking for an income tax definition, then let me tell you that this is a type of tax in the tax concept that is levied on the annual income or the profits that are directly paid to the government. Everyone who has an income is bound to pay an income tax, and apart from the earning individuals, even legal entities are liable to pay income tax. Also, there are different tax slabs for the different income amounts. Now that you have got a good understanding of income tax. Let’s check out the next type of direct tax in the tax concept.

Capital Gains:

This is a type of direct tax in the tax concept, which is primarily levied on the sale of a property, and the money will be received through an investment. The important thing about capital gains to know is that it could be either short-term or long-term capital gains from an investment.

Securities Transaction Tax:

This is a type of direct tax that is primarily levied on the stock market and securities trading. Also, the tax will be levied on the price of the share along with the securities that are traded on the Indian Stock Exchange (ISE).

Prerequisite Tax:

This is another type of tax in the tax concept where the taxes are levied on the different benefits and perks that are provided by a company to its employees

Corporate Tax:

This is a type of tax in the tax concept which is paid by a company.

Dividend Distribution Tax (DDT:

This is a type of tax in the tax concept that is levied on the dividends that the companies will be paying to the investors.

Fringe Benefit Tax (FBT):

This is a type of tax which will be levied on the fringe benefits that an employee will be receiving from the company.

Indirect Tax:

This is a type of tax in the tax concept which are levied on the consumption good and services. In every step of the production process of any goods or value added services will be subjected to the imposition of GST. GST is primarily classified into Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and Intergrated Goods and Services Tax (IGST.

Apart from these, there are other smaller numbers of typical taxes which can be found, and they are paid by the citizens. They are:

  • Customs duty
  • Service tax
  • Gift tax
  • Oil and gas tax
  • Resident tax
  • Tobacco tax and Liquor tax

Now that you have got a good understanding of the tax meaning and types along with tax definition. Head to the next section of the article to learn more about public facilities and services.

Public Facilities and Services:

Public is the word that simply means something which is for everyone and not just oneself. So, when we talk about public services and programs in tax concept, it simply means that there are programs and resources which safeguard people’s lives and property. They promote peace as well as safety.

  • Now let us have a closer look at these public services for which the taxes are levied in the tax concept
  • Constructing tasks that can be related to maintaining mountains, sea, and rivers, along with the construction of bridges and roads
  • Water purification and waste management treatment facilities for promoting hygiene and healthy living
  • For safeguarding the lives, there should be police stations, fire stations as well as Self Defense Forces
  • Fees for textbooks, tuition, and other necessities for education
  • Welfare, including health care costs and pensions
  • Facilitation for everyone to acquire the skills and the information which is required to contribute to the member of society at schools as well as libraries

Want to know about the benefits of tax concept. Head to the next section of the article to know about some of the benefits of tax concept.

Benefits of Tax Concept:

Folks, the primary aim of tax is to provide the government with funds for spending without having any inflation. The taxes are used by the government for different purposes. Here are some of them:

  • For the Operation of the government
  • Effective Public transportation
  • Unemployment benefits
  • Pension schemes
  • Law enforcement
  • In Public health
  • Public Education
  • Public utilities such as water, energy, and waste management systems
  • Funding of public infrastructure
  • Development and welfare projects
  • Defense expenditure
  • Scientific research

Head to the next section of the article to decode some of the advantages of the tax concept.

Advantages of Tax Concept:

Here are some of the advantages of the tax concept:

Visa applications:

When you are applying for a visa, there are many foreign countries that will require you to furnish them with income tax returns from the previous years in the visa interview. This is especially mandatory when you are looking to have a visa for the UK, US, Europe, and Canada, but not so much for South East Asian countries and the Middle East. This is primarily because income taxes are proof that you are not trying to elope from the country for escaping to pay taxes

Loan approvals:

This is another advantage of the tax concept when you are looking to apply for a loan, especially when it is a home loan or vehicle loan, among others. Major banks will be requesting you to submit a copy of the income tax returns. This will be ITR from the last two to three years. The reason for asking for an income tax return copy is because income tax will provide a clear picture of the income as well as the the taxes that were paid on it in the previous years.

Self-Employed Individuals:

Another prime advantage of the tax concept is that Freelancers, consultants, entrepreneurs, and partners of firms are not eligible for Form 16. Only when their annual income exceeds their basic limitation limit, will you find that the ITR receipts are provided as proof of income

Claiming tax refunds:

The tax concept is also useful in claiming tax refunds. Any refunds that are due from the IT department will be claimed only when the income tax returns have been filed.

Conclusion:

The concept of tax is very important for any resident of the country. It is not the duty of every resident to pay taxes on time but also duly have knowledge about the taxes which they are paying. Evading taxes is a crime and must be avoided. In this article, we have given a brief introduction that one can use to define tax along with it. We have also shared the benefits and advantages of the tax concept. That’s all, folks. I hope the article will help you to get all the information you need.

Also Read:

What is Indirect Tax? Meaning and Types

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David Scott
David Scott
Digital Marketing Specialist .
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