Direct taxes are levied on individuals and corporate entities and cannot be transferred to others. The most common illustration of direct tax is the income tax. Income tax is just one among four different types of direct taxes imposed in India. These include income tax, wealth tax, and gift tax.
The overall control for administration of Direct Taxes lies with the Union Finance Ministry which functions through Income Tax Department with the Central Board of Direct Taxes (CBDT) as its apex body. The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963.
As per the Income Tax (IT) Act, 1961 every assessee whose total income exceeds the maximum exempt limit is liable to pay this tax. The tax structure and rates are annually prescribed by the Union Budget. This tax is imposed during each assessment year, which commences on 1st April and ends on 31st March. The total income is calculated from various heads such as business and profession, house property, salaries, capital gains, and other sources. The assesses are classified as individuals, Hindu Undivided Family (HUF), association of persons (AOP), body of individuals (BOI), company, firm, local authority, and artificial judiciary not falling in any other category. Anyone who is earning less than Rs. 2.50 lakhs per annum is exempted from tax, meaning they do not have to pay Income tax.
This Act may be called the Wealth-tax Act, 1957 and extends to the whole of India. It has come into force on the 1st day of April, 1957.
Wealth tax is one of the direct taxes to be paid by Individuals and other entities on their wealth. According to the Wealth Tax Act, 1957, an individual, a Hindu Undivided Family or a company had to pay a wealth tax of 1% on earnings of over and above Rs.30 lakh per annum. The tax was a levy of tax on the net wealth (the total value of assets less the total value of debts or liabilities).
The purpose of wealth tax was to increase the amount of direct taxes being collected from rich people in order to reduce inequality in wealth across India and ensure that these people made a larger contribution towards the revenue of India.
The Wealth tax has been abolished in the budget of 2015 (effective FY 2015-16), and as an alternative to the wealth tax, the finance minister has hiked the surcharge from 2% to 12% for the super-rich section. Individuals with an income of above Rs.1 crore and companies with an income of over Rs.10 crore fall under the ambit of the super-rich segment.
As per wealth tax guidelines there are two kinds of assets:
Property tax or 'house tax' is a local tax on land and buildings, imposed and collected from owners by the local bodies/municipal corporations. The tax power is vested with the local municipal authorities and they decide on property valuation and tax rate and collection procedures from time to time.
The companies and business organizations registered in India under the Companies Act are liable to pay tax on their net income from their worldwide transactions under the provisions of Income Tax Act, 1961. This is called Corporate Tax. In case of non-resident companies, tax is levied on the income earned from their business transactions in India or any other Indian sources depending on bilateral agreement of that country.