Tax is an important aspect of any society; whether it is a middle-class office going person or a big firm, both are affected by the taxes they have to pay to the government, so understanding the whole mechanism is necessary.
Tax is derived from the Latin word “Taxo,” which means a mandatory payment made by the public to fund various public expenditures like infrastructure, healthcare, etc. Taxes are of various types levied on various categories of the population on different levels; it is very important to understand which category you fall in to understand which tax will be levied on you. Tax planning firms are also operating online for the assistance of the clients.
Effects and advantages of taxation
The main purpose of taxation is to generate funds for the government to carry out various functions. The revenue generated by the government through taxation is called “fiscal capacity.”
If the government expenditure exceeds the fiscal capacity, it leads to debt accumulation, leading to imbalance. Many economists believe taxation causes a change in the relative pricing of products, leading to market distortion; hence, they want to create a taxation system that minimizes this distortion, creating an efficient ecosystem.
Types of taxes
- Income Tax
This tax is levied on the regular working individual; it is deducted from their salary depending on the tax rates prevalent in the country in a system called TDS (tax deducted at source). For businesses or corporations, this tax is charged on the net profit made by them.
- Property Tax
Property tax is levied on the property owner based on the property’s market value, and the tax is paid to the government under whose jurisdiction the area lies, where the property is situated.
- Inheritance Tax
Inheritance tax, estate tax, and death tax are forms of taxes that arise on an individual’s death. There is a distinction between an estate tax and an inheritance tax. The former is levied on personal representatives of the dead. The latter is levied on beneficiaries of the estate.
- GST (Goods and Services Tax)
This a form of taxation that has been recently remodeled in India. It is an indirect tax charged in goods and services provided in India. The taxes are divided into five categories based on the percentage charged for different products and services. Petroleum products and alcoholic beverages are taxed separately by the state governments.
The tax replaced the earlier taxation system at various levels by a system of direct payment of taxes; this system has been in implementation since July2017 with mixed results.
- Tax Planning Services
Tax planning services are provided by various firms to help regulate andmanage the taxes paid by big businesses and companies.
With the growing market and changing the taxation system in our country, tax regulation is a thriving industry; many multinationals and local businesses turn to these firms to manage their tax returns and tax mechanisms.