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India’s taxation framework plays a crucial role in the economy by mobilizing resources, financing public infrastructure, and supporting welfare schemes. It follows a federal structure where both the Central and State governments levy taxes within their respective jurisdictions. The tax system broadly divides into two categories:

• Direct Taxes – Paid directly by taxpayers to the government.
• Indirect Taxes – Levied on goods and services and collected through intermediaries.

1. Direct Taxes in India

Direct taxes are taxes that are levied on individuals or entities and paid directly to the government. These are progressive in nature, aiming to ensure the tax burden is equitably shared according to income or wealth.

Major Types of Direct Taxes

• Income Tax: Tax on individual and entity income, based on various income heads such as:
  • Salary
  • Income from House Property
  • Profits and Gains from Business or Profession
  • Capital Gains from sale of assets
  • Other sources including interest and dividends
• Corporate Tax: Tax on the income of companies and firms.
• Capital Gains Tax: Tax on gains from the transfer of capital assets like property, shares, or funds.
• Minimum Alternate Tax (MAT): Ensures a minimum payable tax by corporate entities.

Income Tax Slabs for FY 2025-26 (New Tax Regime)

Note: Rebate under Section 87A is ₹60,000 for taxable income up to ₹12 lakhs. Standard deduction for salaried individuals is ₹75,000.

Old vs New Tax Regime

• Old Regime: Includes deductions under 80C, 80D, HRA, etc.
• New Regime: No deductions but offers lower slab rates.

2. Indirect Taxes in India

Indirect taxes are collected from consumers via suppliers and traders. They are built into the price of goods and services. GST is the cornerstone of India’s indirect tax structure.

Major Indirect Taxes

• GST (Goods and Services Tax): Unified indirect tax applicable across India.
• Customs Duty: Levied on imports and exports.
• Excise Duty: Applicable to a few items like petroleum, tobacco, and alcohol.
• Stamp Duty: On property and legal transactions.

GST Components

• CGST: Central GST on intra-state supply.
• SGST: State GST on intra-state supply.
• IGST: Integrated GST on inter-state and cross-border supply.

Current GST Rate Slabs

• 0% – Essential items (milk, grains)
• 5% – Common goods and services
• 12% – Processed foods, business inputs
• 18% – Standard services, electronics
• 28% – Luxury and sin goods

3. Other Vital Tax Concepts

• Health and Education Cess: 4% on total income tax.
• Surcharge: Ranges from 10% to 25% for high-earning individuals and corporations.
• TDS & TCS: Tax deducted or collected at source on specified transactions.
• Digitalization: E-filing, faceless assessment, and refund tracking.
• Taxpayer Charter: Introduced in 2020 to protect taxpayer rights.

4. Latest Government Reforms (2025)

• Draft Income Tax Bill 2025 proposed to simplify income tax with a unified assessment year.
• GSTN portal updated with AI-based alerts for unmatched invoices and input tax credit fraud.
• Instant PAN and Aadhaar linking-enabled compliance checks.
• Faceless appeals and instant refund processing introduced for select taxpayers.
• Increased focus on voluntary compliance and reduction of tax litigation.

Image credit: CMA Knowledge

India’s tax system is increasingly transparent, tech-driven, and citizen-friendly. As reforms continue, it becomes essential for taxpayers, professionals, and students to stay updated, informed, and compliant. Visit cmaknowledge.in regularly for more updates and expert insights on Indian taxation.