Paying taxes is an obligation that every Indian citizen is supposed to fulfil. And to help citizens follow through with their duty, the Government of India and the Income Tax* Department have simplified the process of paying taxes and filing tax* returns online. However, the process of tax* collection dates back to the times when scriptures.
In today’s time, the collection of taxes is based on the taxpayer’s income and category, much like it was in ancient times. Since then, the Indian tax* system has changed dynamically in various ways. Today, even filing income tax* returns on life insurance in India can be carried out online on the official Income Tax* Department website.
Here is a brief outline of how far the direct taxes have come.
What is Direct Tax Definition?
Direct tax* is the type of tax* that is paid by the taxpayer on their income, earnings and profits. This tax* is not levied on goods and services but on the taxpayer. The taxpayer can be an individual or an organisation, and the tax* is collected by the authority that imposes it, i.e., the Government of India and is a source of revenue for the government.
An important feature of direct taxes is that the responsibility of paying it cannot be passed on to another person or entity, as in the case of indirect taxes.
What is Direct Tax History?
The first tax* structure was laid out by the Income Tax Department in 1922 that outlined specific terminologies for Income Tax* authorities. Since 1922, the changes and amendments in the Indian Tax System have been quite rapid. The second World War, during which the business communities made excellent profits, also saw the introduction of the Excess Profits Tax* and Business Profits Tax* between 1940-1947, which were then repealed in 1946. The administration of this tax* that was handed over to the Income Tax* Department was also repealed in 1949.
But most importantly, there were numerous policy and administrative tax reforms were carried out.
For instance, under policy reforms, tax* rates were lowered, tax laws, especially the ones concerning capital gains, were simplified, measures for presumptive taxation were brought in, and the tax* base was widened.
Under administrative reforms, the tax* collection system was computerised, which involved allotting unique identification numbers to taxpayers, and human resources were realigned to meet the business needs of the department.
Digitisation of Tax Collection
The tax* system at the Income Tax Department was computerised in 1981 when the Directorate of Income Tax* (Systems) was set up. Three computer centres using SN-73 systems were set up between 1984-85 in metropolitan cities for processing challans. By 1989, 33 major cities had this setup, and computerised activities started the allotment of PAN (Permanent Account Number) and TAN (Tax Collection Account Number) and the accounting of payroll.
The major landmarks in the digitisation of the taxation system were the e-filing of tax* returns and the electronic payment of taxes through the official Income Tax* Department website. In 2006, filing tax returns was digitised with a project that helped in e-filing (electronic filing) of income tax* returns. A centralised processing centre (CPC) was launched in Bengaluru in 2009 for the purpose of bulk processing of e-filed and paper returns without any jurisdiction.
One of the major benefits of electronic filing of returns and online tax* payments is that there is less scope for manual errors in the tax* collection process, and taxpayers can save a lot of time with online tax* payments and when filing online tax* returns.
As of today, these are the different types of direct taxes that can be paid online.
Types of direct tax
- Income Tax – Income tax* is a type of direct tax* that everyone is familiar with. Income tax* has to be paid on the basis of an individual’s age and earnings. The tax* slabs determined by the Government of India help you know how much income tax* is to be paid. To claim your tax* returns, you will need to file Income Tax* Returns (ITR) every year.
- Corporate Tax – The corporate tax* is paid by domestic companies but not their shareholders. This direct tax* is also levied on foreign companies and corporations that have set up business in India and are making an income here. Under this tax*, the income earned from the sale of assets, the fees for technical services, royalties, interest and dividends are taxable. Corporate tax* is divided into:
- Securities Transaction Tax (STT): Income earned from the transactions via the sale and purchase of stock market securities will be eligible for the Securities Transaction Tax*.
- Dividend Distribution Tax (DDT): If a domestic company declares, distributes or pays out a dividend amount to its shareholders, the Dividend Distribution Tax* is levied on them. Foreign companies do not have to pay the DDT.
- Minimum Alternate Tax (MAT): The Minimum Alternate Tax* is applicable for companies, and Limited Liability Partnerships (LLPs) that have book profit but do not pay taxes under the Income Tax* Act, as their income calculated is nil. Like the MAT, the Alternate Minimum Tax* (AMT) is levied on Limited Liability Partnerships (LLPs).
However, this does not apply to an individual, a Hindu Undivided Family (HUF) or a Partnership if the total adjusted income is below ₹20 lakhs.
- Capital Gains Tax: This direct tax* is levied and paid on the income earned from the sale of investment assets. Investments in bonds, shares, real estate, etc., are considered capital assets. Based on its holding period, tax* can be classified into long-term capital gains tax* (for securities held for over 36 months) and short-term capital gains tax* (for securities held for less than 36 months).
Saving methods such as insurance policies in India, though taxable in the hands of the policyholder, also offer tax* benefits. With a life insurance policy from Tata AIA life insurance, you can claim tax* deductions and benefits on the policy premiums and the proceeds as per the prevailing tax* laws.
Over the years, it is not only the taxation system but also the Income Tax* Department and its rules that have undergone a number of organisational and regulatory changes. In keeping with the times, after the computerisation of the tax* process, digitisation also took over, enabling taxpayers to access their tax* statements from anywhere, through any electronic device.
Along with these changes, the Indian tax* system has seen an increase in revenue collection, redesigned business processes and more improvement in tax-payer services.