Direct Tax

Direct Tax is the tax paid to the government directly by the assessee like the Income Tax or the Capital Gains Tax. There has been a steady rise in the net Direct Tax collections in India over the years.

All the collections of the direct taxes in India like the Corporate Tax, Personal Income Tax, Securities Transaction Tax, Banking Cash Transaction Tax, and the Fringe Benefit Tax have been going through a healthy ascent. For instance, in the current year the personal income taxes collection have increased with the rate of TDS being higher than the previous years. Overall, as per the estimates of the Budget of the financial year 2006-07, the target of Direct Tax growth rate was estimated to be 27.5%, but so far it has exceeded this limit and reached 41.2%. At present, the net Direct Tax collection of India is at Rs.610.30 billion, which is estimated to rise to 42% over Rs.429.80 billion as it was in the last financial year. This growth in the rate of Direct Tax reflects a continued increase in the economy, high tax compliance, and better tax administration.

One of the main forms of Direct Tax is the Taxes on Corporate Income, under which the companies residing in this country pays a tax on their global income arising from all sources. The payment of the tax follows the provisions of the Income Tax Act. On the other hand, the non-resident companies pay the Direct Tax on the income obtained from an India-based business connection. The resident companies pay a tax at the rate of 35% with a surcharge of 2.5% while for the non-resident companies the basic tax rate goes up to 40% along with the same 2.5% surcharge. Along with these the corporate companies also pay an education tax at the rate of 2% and a wealth tax at the rate of 1%. Moreover, a Minimum Alternative Tax at 7.5% also requires to be paid by the Domestic corporations.

The Capital Gains Tax is another important form of Direct Tax in India which is payable on capital gains received upon the sale of assets. If the capital assets are in possession for more than three years and regarding the shares, stock exchange securities, mutual fund units the time frame for possessing the asset is one year. The basic tax rate of the long-term capital gains is fixed at 20% while for the short-term capital gains the rate is fixed at the normal corporate income tax rate. A rate of 10% is fixed on the transfer of equity shares from which the short-term capital gain emerges.

Personal Income tax is another type of Direct Tax, which is under the Central Government controlled by the Central Board of Direct Taxes. The taxpayer is required to pay a tax if the income level reaches above Rs. 100,000. If the income reaches Rs. 850,000 there is a surcharge of 10% imposed on the total tax.