In this blog, we will explore the top 10 types of business taxes in India, and explain in detail how they impact businesses and their operations. In India, there are several types of taxes applicable to companies that help fund the services being carried out and maintain monetary balance. Businesses need to understand these taxes to ensure approvals and avoid penalties. From corporate income tax to indirect taxes like GST, each type of tax plays an important role in the country’s tax system.
What is the Business Tax?
Business taxes to imposed by governments on the income, profits, or other monetary activities of businesses. These taxes are imposed to generate revenue for the government and to regulate various sectors of the economy. Business taxes can be quite different depending on the type, size, and status of the profession.
1. Revenue generation: To fund public services such as infrastructure, education, and healthcare.
2. Economic regulation: encourages or discourages certain business activities.
3. Fair Competition: A level playing field is ensured by standardizing tax liabilities.
What are the Top 10 Types of Business Taxes in India?
1. Income Tax
2. Corporate Tax
3. Capital gain Tax
4. Securities Transaction Tax
5. Custom Duty
6. Sales Tax
7. Service Tax
8. Value Added Tax
9. Excise Duty
10. Goods and Services Tax (GST)
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1. Income Tax
Income tax is a direct tax levied on the income of an individual or establishment by the government. It is a major source of government revenue and is levied in India under the provisions of the Income Tax Act, of 1961.
1. Applicability: Taxed on income from salary, business, house property, capital gains, and other sources.
2. Tax Slabs (FY 2024-25):
Old regime: progressive rates (5%-30%).
New regime: Lower rates without any deductions (optional).
3. Corporate tax rates: 15%-22% for domestic companies.
4. Exemptions and deductions: Popular options include 80C (₹1.5 lakh) and 80D (health insurance premium).
2. Corporate Tax
Corporate tax is a direct tax levied on the imputed income or profits of companies. It is one of the primary revenue sources for governments and applies to both domestic and foreign companies operating within the country.
1. Domestic companies: Global income will be taxed.
2. Foreign Companies: Income earned in India will be taxed.
3. Rates:
15% for new manufacturing companies.
22% for other domestic companies opting for lower rates.
30% standard rate for others.
4. MAT: Ensures minimum tax on book profits.
5. Recent Changes: Lower Tax Rates (2019) and Removal of Dividend Distribution Tax (2020).
3. Capital gain Tax
Capital gains tax is a tax that is levied on the profit earned from the sale of a capital asset, such as real estate, stocks, bonds, or other investments. In India, it is governed by the Income Tax Act, of 1961. The tax depends on the holding period of the asset and its classification.
1. Indexation Benefit: Adjusts the purchase price according to inflation, thereby reducing taxable profits.
2. Set-off and carry forward: Capital losses can be set off against profits and carried forward for up to 8 years.
3. Tax Payment: Pay as advance tax or while filing income tax returns.
4. Securities Transaction Tax
Securities Transaction Tax (STT) is a tax levied on transactions involving securities listed on stock exchanges in India. It applies to the purchase and sale of equities, derivatives, and other securities except commodity and currency trading.
1. Applicability: Applicable to equity shares, equity-oriented mutual funds, and derivatives traded on recognized stock exchanges.
2. Nature: It is a direct tax collected at the source.
3. Rates: Vary depending on the type of transaction (for example, delivery-based equity trade, intra-day trade, or derivatives).
Example: 0.1% on equity delivery transactions.
5. Customs Duty
Customs duty is a tax that is levied on goods imported into or exported from a country. Its purpose is to regulate international trade, protect domestic industries, and generate government revenue.
1. Basic Customs Duty (BCD): Standard rate on imported goods.
2. Integrated GST (IGST): Levied on imports in addition to BCD.
3. Anti-dumping duty: Imposed to protect domestic industries from unfair foreign pricing.
4. Safeguard Duty: Imposed temporarily to prevent a surge in imports.
5. Export Duty: Levied on specific exported goods.
6. Sales Tax
Sales tax is a tax levied on the sale of goods to consumers. In India, it has been largely subsumed into the Goods and Services Tax (GST) since 2017. However, it may still apply in some cases, such as the sale of specific petroleum products and alcohol, which are outside the scope of GST.
1. Definition: A sales tax is a consumption tax levied on the sale of goods and services.
2. GST Replacement: In India, most sales tax categories were replaced by GST in 2017, which integrates multiple taxes (such as VAT and sales tax) into a single structure.
3. Applicable goods: Sales tax may still apply to goods outside the scope of GST, such as alcohol and petroleum products.
4. Taxpayer: The seller collects sales tax from the buyer and remits it to the government.
7. Service Tax
Service tax was an indirect tax levied by the Government of India on the provision of services. It applied to a wide range of services such as telecommunications, insurance, and legal services.
1. Levy: Applicable on the value of services provided.
2. Rate: The rate was generally around 14% (including cess).
3. Usability: Fees are charged to the service provider, but the cost is passed on to the consumer.
4. Collection: Collected by the service provider and paid to the Government.
8. Value Added Tax
Value-added tax (VAT) is a reportable tax levied on the value added at each stage of the manufacture or distribution of goods and services. It is collected sequentially at each stage of the supply chain, from production to sale, with businesses receiving credit for the taxes paid on their purchases.
1. Tax on value addition: VAT is paid on the difference between the selling price and the production cost, i.e. “value addition” at each stage.
2. Eliminate cascading effect: Unlike sales tax, VAT prevents tax-on-tax by allowing businesses to claim credit for taxes paid on inputs.
3. Multi-stage taxation: It applies at every stage of production or distribution from raw materials to final sale.
4. Indirect Taxes: The burden of tax is ultimately borne by the end consumer, as businesses charge VAT to them.
9. Excise Duty
An excise duty is a type of reported tax that is levied on the manufacture, production, or sale of particular goods within a country. It is particularly levied on goods that are produced domestically. The tax is collected at the point of manufacture, and the manufacturer or producer pays it before selling the goods to consumers or businesses.
1. Applicability: Applicable to goods such as alcohol, tobacco, and petroleum products.
2. Types: It includes Basic Excise Duty (BED), Special Excise Duty (SED), Ad Valorem (percentage-based) and Specific (per unit).
3. GST impact: Excise duty on most goods was replaced by GST in 2017, but it still applies to products like tobacco and petroleum.
10. Goods and Services Tax (GST)
Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services in India. It has replaced multiple taxes such as VAT, excise duty, and service tax, thereby simplifying the tax system and ensuring a uniform tax rate across the country.
1. Dual GST system: Central GST (CGST) and State GST (SGST) for intra-state transactions, Integrated GST (IGST) for inter-state.
2. Tax Rates: From 0% to 28%, essential commodities will be taxed at 0% or a lower rate.
3. Input Tax Credit (ITC): It allows businesses to claim credit for taxes paid on inputs.
4. Registration: Mandatory for businesses with turnover above Rs 40 lakh (goods) or Rs 20 lakh (services).
Conclusion
Business taxes are an essential component of any austerity, ensuring that the regime has the revenue required to fund the services and infrastructure it needs. In India, taxes such as corporate tax, GST, and others provide a structured way to regulate business activities and promote fair competition.
It is essential for companies to understand and comply with business tax laws to avoid penalties and maximize their financial efficiency. By staying updated with tax regulations and utilizing benefits such as input tax credits, businesses can streamline their operations and contribute to national economic growth.
FAQs
Q1. How much tax to pay for a business?
The tax paid by a business depends on factors such as income and type of operations. The main taxes include:
Corporate tax: 15%-22% on profits.
GST: 0%-28% depending on goods/services.
Professional tax: Based on income, determined by states.
Other taxes: Includes property, excise duty, and customs duty.
Q2. Which business is tax-free in India?
In India, agricultural income is generally tax-free, as it is exempt from income tax under section 10(1) of the Income Tax Act. Additionally, businesses with turnover below the GST registration threshold (₹40 lakh for goods and ₹20 lakh for services) may not need to register for GST and may operate tax-exempt for GST purposes.
Q3. Which business has to pay tax?
All businesses operating in India, regardless of their size or structure, are required to pay taxes. This includes sole proprietorships, partnerships, limited liability partnerships (LLPs), private limited companies, and public companies. Corporate income tax, goods and services tax (GST), professional tax, and other taxes depend on the type of business, its turnover, and the goods or services it provides.
Q4. Do small businesses pay taxes in India?
Yes, small businesses in India must pay taxes including income tax, GST (if turnover exceeds the threshold), and professional tax. However, businesses with turnover of less than ₹40 lakh (goods) or ₹20 lakh (services) may be exempted from GST registration.
Q5. Which company has the highest tax?
Companies such as Reliance Industries, Tata Group, and Indian Oil Corporation usually pay the highest taxes in India due to their large profits and operations. These businesses are subject to corporate income tax based on their income.
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