Taxation Laws in India

Taxation laws in India govern the levy, collection, and administration of taxes by the Central and State Governments. Taxes are essential for public welfare, infrastructure, and economic growth. The taxation system in India is broadly divided into Direct Taxes (paid directly by individuals and businesses) and Indirect Taxes (levied on goods and services).

1. Types of Taxes in India

A. Direct Taxes (Levied on Income & Wealth)

  • Income Tax (Income Tax Act, 1961) – Tax on individuals, businesses, and firms.
  • Corporate Tax – Tax on the profits of companies.
  • Minimum Alternate Tax (MAT) – Ensures companies pay a minimum tax even if they claim exemptions.
  • Capital Gains Tax – Tax on profits from the sale of assets like stocks, real estate.
  • Dividend Distribution Tax (DDT) – Tax on dividends paid by companies (now abolished in 2020).
  • Wealth Tax (Abolished in 2016) – Previously levied on net wealth above a threshold.

B. Indirect Taxes (Levied on Goods & Services)

  • Goods and Services Tax (GST) – Unified tax system replacing VAT, Service Tax, Excise.
  • Customs Duty – Tax on imports & exports.
  • Excise Duty (Now Merged into GST) – Previously levied on manufacturing.
  • Stamp Duty & Registration Fees – Tax on property transactions.

2. Income Tax (Income Tax Act, 1961)

Key Features of Income Tax

  • Levied on individuals, HUFs, firms, LLPs, and companies.
  • Progressive Tax System – Higher income attracts higher tax rates.
  • Tax collected by the Central Board of Direct Taxes (CBDT).
  • Assessment Year (AY) & Financial Year (FY) – Tax is filed for the previous financial year.

Income Tax Slabs for Individuals (FY 2023-24)

India has two tax regimes – Old Tax Regime (with exemptions) & New Tax Regime (lower rates, no exemptions).

Income Range Old Regime Tax Rate New Regime Tax Rate
Up to ₹2.5 lakh Nil Nil
₹2.5 lakh - ₹5 lakh 5% 5%
₹5 lakh - ₹7.5 lakh 20% 10%
₹7.5 lakh - ₹10 lakh 20% 15%
₹10 lakh - ₹12.5 lakh 30% 20%
₹12.5 lakh - ₹15 lakh 30% 25%
Above ₹15 lakh 30% 30%
  • Rebate under Section 87A – No tax if income is up to ₹7 lakh (new regime).
  • Deductions & Exemptions (Old Regime) – Section 80C (PPF, LIC, ELSS), 80D (Health Insurance), 80E (Education Loan), HRA, LTA, Standard Deduction.

Tax Filing & Deadlines

Due Date for Filing ITR:

  • July 31 – Individuals
  • October 31 – Companies & Firms

Penalty for Late Filing:

₹1,000 - ₹5,000

3. Corporate Taxation

Corporations in India pay taxes based on profits.

Type of Company Tax Rate
Domestic Company (< ₹400 Cr turnover) 25%
Domestic Company (> ₹400 Cr turnover) 30%
New Manufacturing Companies (After Oct 1, 2019) 15%
Foreign Company 40%
MAT (Minimum Alternate Tax) – 15% for companies that show low profits due to exemptions.

4. Goods & Services Tax (GST) – Indirect Tax System

GST is a multi-stage, destination-based tax on goods and services. It replaced VAT, Service Tax, Excise Duty, CST, and other indirect taxes.

GST Slabs

Category GST Rate
Essential Goods (Milk, Fresh Vegetables) 0%
Gold, Precious Metals 3%
Restaurants, Hotels (< ₹7,500 per night) 5%
Standard Goods & Services (Electronics, Processed Food) 12%
Luxury Items (Cars, Tobacco, Soft Drinks) 28%

GST Components

  • CGST (Central GST) – Tax collected by the Central Government.
  • SGST (State GST) – Tax collected by the State Government.
  • IGST (Integrated GST) – Tax on inter-state transactions.

GST Compliance & Filing

  • GST Registration Required If Turnover > ₹40 lakh (Goods) / ₹20 lakh (Services)
  • GST Returns Filed Monthly & Annually (GSTR-1, GSTR-3B, GSTR-9)
  • E-way Bills for Goods Movement > ₹50,000

5. Capital Gains Tax

Tax on profits earned from selling assets like real estate, stocks, bonds.

Type Holding Period Tax Rate
Short-Term Capital Gains (STCG) < 1 Year (Stocks), < 3 Years (Property) 15% - 30%
Long-Term Capital Gains (LTCG) > 1 Year (Stocks), > 3 Years (Property) 10% (Stocks > ₹1 lakh), 20% (Property)
Exemptions (Section 54, 54EC) – Buying another house/property to save tax.

6. Other Important Taxation Laws

A. Customs Duty (Customs Act, 1962)

  • Tax on Imports & Exports – Protects domestic industries.
  • Basic Customs Duty (BCD), Countervailing Duty (CVD), Anti-Dumping Duty.

B. Stamp Duty & Property Tax

  • Stamp Duty – Tax on Property Transactions & Legal Documents.
  • Property Tax – Paid to local municipal corporations (varies by state).

C. Tax on Digital Transactions

  • Equalization Levy – 6% Tax on Foreign Digital Companies (Google, Facebook Ads).

D. Excise Duty (Now under GST)

  • Earlier levied on manufacturing; now merged into GST.

7. Tax Evasion vs Tax Avoidance

Tax Evasion

Illegal practice of hiding income, falsifying records.

Tax Avoidance

Using legal tax-saving methods like investments & deductions.

Tax Authorities & Compliance

  • Income Tax Department (CBDT) – Direct Taxes
  • GST Council – Indirect Taxes
  • Customs & Excise – CBIC