Tax liabilities are the entire amount of tax outstanding within a concerned time horizon, payable to taxing entities like central or state government or local authorities like a municipality. Individuals and institutions are liable to pay taxes on their earned income.
In business, these are considered as short-term debt accounted for on the balance sheet and cleared off within the given year. And, for individuals, these are payable obligations that need to be paid from withholdings or own savings.
Types of Taxes
Two major tax categories are found in India’s current taxation system. And these two categories have further subdivisions under them. Here are the types-
- Direct tax
Tax liabilities that are paid straight to the central government are direct taxes. Individuals and organisations with taxable income are entitled to pay it.
Sub-divisions of Direct Taxes
- Income tax
Other than companies, any individual or HUF is liable to pay taxes on his/her income during a financial year. The government levies income tax on salary, pension, interest earnings, and property rental income. Further, the earnings of freelancers, self-employed or contractors, CA, lawyers and doctors also come under the purview of income taxes.
- Corporate tax
Both domestic and foreign companies must clear income tax liability on their gross profit during a concerned period. However, the domestic companies pay taxes on the universal income while foreign companies are taxed solely on their Indian earnings. Corporate tax has the following sub-categories-
- Health and education cess – Further, another 4% of the income tax is accounted for health and education.
- Dividend distribution tax – Companies carry tax liabilities on its dividend circulated amongst the shareholders in every financial year and tax exemption up to Rs. 10 lakh is allowed under income tax law. This tax is levied on a company’s gross or net income of an investment.
- Minimum Alternative Tax – A minimum alteration tax is mandatory tax companies pay under Section 115JA at 18.45% rate on book profit, only if the concerned company is paying income tax below the said rate.
- Fringe benefits tax – Fringe benefits tax is accounted for on the benefits such as accommodation expenses, travel allowance, employee’s contribution to the retirement fund, etc.
All these taxes come under corporate taxation of India.
- Securities transaction tax
- Capital gains tax
Capital gain tax is charged on both earnings from the returns on investments or gains from selling a property.
- Prerequisite tax
Prerequisite taxes are counted on the several facilities that an organisation provides to its employees.
- Indirect tax
Here an individual does not pay taxes directly to the government. Instead, the tax is bundled together with the price of products or services. Presently, the only indirect tax in India is GST or Goods and Services Tax.
Different Income Tax Slabs
The Indian income tax functions under the Central Board of Direct Taxes. The primary duty of this department is to implement several direct taxes to collect substantial revenue for the country. It came on effect from 1961.
The income tax liability is structured to suit the various income slabs. Income tax slabs were updated on 1st February during the Budget 2020.
Comparison of the old and new income tax slab of 2020-21 AY
|Income tax slab||Old tax rate||New tax rate|
|Up to Rs. 2.5 lakh per year||Nil||Nil|
|From Rs. 2,50,001 to Rs. 5,00,000 per year||5%||5% of the total income + 4% cess|
|From Rs. 5,00,001 to Rs. 7,50,000 per year||20%||10% of the total income + 4% cess|
|From Rs.7,50,001 to Rs. 10,00,000 per year||20%||15% of the total income + 4% cess|
|From Rs. 10,00,001 to Rs. 12,50,000 per year||30%||20% of the total income + 4% cess|
|From Rs. 12,50,001 to Rs. 15,00,000 per year||30%||25% of the total income + 4% cess|
|From Rs. 12,50,001 to Rs. 15,00,000 per year||30%||30% of the total income + 4% cess|
In the budget of 2020, the rate of income tax was cut down to provide some relief to the populace. However, several tax deductions and exemptions on house rent allowance, a premium of medical insurance, contribution to NPS were omitted from the structure. Also, taxpayers are allowed to choose between the old and the new structure.
To ease out all the confusion regarding tax, the Income Tax Department of India has also introduced an e-calculator to simplify tax liabilities calculation online.
Corporate Tax Slabs
Before proceeding to the corporate tax slabs, one must know that companies are divided into two categories.
- Domestic company
The companies that come under the Companies Act of India are called domestic companies. It also includes companies whose control and management bodies are situated in India. Here are the tax liabilities of domestic companies.
|Income tax slab||Tax rate|
|Up to Rs. 250 crore gross turnover||25%|
|More than Rs. 250 crore gross turnover||30%|
Rate of surcharges additionally on the above rate
|Total income must fall between Rs. 1-10 crore||7%|
|Total income must exceed Rs. 10 crore||12%|
- Foreign company
Contrarily, companies that are managed and controlled from outside the country and are not registered under India’s company act called international companies. Here are the tax liabilities of a company that is controlled internationally.
|Nature of the company’s income||Tax rate|
|Received fees or royalty for any technical services from government or any other concern from India under agreements created before April 1, 1976, and approved by the central government||50%|
|Income from other sources||40%|
Rate of surcharges additionally on the above rate
|Total income must fall between Rs. 1-10 crore||2%|
|Total income must exceed Rs. 10 crore||5%|
Corporate tax obligation example
Here is a corporate tax liability example to clear any confusion
|Particulars||Amount in crores (Rs)|
|Total income of the company||500|
|Gross profit before tax||400|
|Gross profit after tax||400 – 120 = 280
Types of tax liabilities
Two types of tax obligations are counted-
- Current liabilities
Current tax liabilities are such short-term tax obligations that an individual must pay within a year.
- Deferred liabilities
However, deferred tax obligations are tax debts that are assessed or due for the present period, but they have not been paid within the cycle.
Steps to Pay Taxes in India
In India, one can pay taxes both online and offline.
- Online Payment Method
- First, visit the authorised website – www.tin-nsdl.com and log in. Click the Services tab, followed by e-payment.
- A screen with e-Payment of taxes will appear. Individuals need to select challan – ITNS 280.
- Next, along with the PAN or TAN, fill up this challan with required details.
- After the submission of valid PAN or TAN and details, the individual’s name will appear on the confirmation screen.
- Post this confirmation, it will redirect the taxpayer to the bank’s net-banking page.
- Now, access the net-banking site and enter the payment details.
- After successful payment, as a proof of the payment, a counterpart of the challan will appear. This completes the tax payment process.
- Offline mode
Individuals can download the challan 280 from the internet or collect it from their bank. They can clear the tax liabilities either by cash or cheque.
- What documents are required for ITR filing?
You need the following details while filing ITR
- Your tax amount
- Assessment year
- PAN number
Other than that you also need to know the type of payment, such as self-assessment tax or advance tax, etc.
- What is the difference between exempted income and taxable income?
Taxable income is the income on which the tax will be levied. An exempted income is a part of your income that is tax-free. For example, if you earn Rs. 3 lakh annually, then Rs. 2.5 lakh is tax-free and the remaining Rs. 50,000 is taxable.
- Do I need to disclose all the avenues of my earnings?
You are mandated to mention all modes of earnings to avoid any penalty charges.