Basics of Tax

What is Tax?

Tax is a fee charged ("levied") by a government on a product, income, or activity.
It is a compulsory contribution to state revenue.

What are basic types?

1.       Direct Tax

·         Collected directly from individuals who earn income. E.g., corporate tax, income tax etc

2.       Indirect Tax

·         Collected indirectly. If you do a business you tend to pay (service tax, sales tax) for your sales. And in other areas we need to pay indirect taxes such as in the products (Petrol, alcohol and cigarettes) when it comes to vehicles excise duty must be paid for vehicles, road tax etc.

Why Me?

The purpose of taxation is to finance government expenditure. One of the most important uses of taxes is to finance public goods and services, such as street lighting and street cleaning. Since public goods / services do not allow a non-payer to be excluded; they tend to finance themselves largely through taxes. These goods / services need to be provided by the government or a quasi-government agency.

What is Tax Planning?

Tax planning is an essential part of financial planning. Efficient tax planning enables you to reduce your tax liability to the minimum. This is done by legitimately taking advantage of all tax exemptions, deductions rebates and allowances while ensuring that your investments are in line with your long term goals.

What tax planning is not...

1.     Tax Planning is NOT tax evasion. It involves sensible planning of your income sources and investments. It is not tax evasion which is illegal under Indian laws.

2.     Tax Planning is NOT just putting your money blindly into any 80C investments.

3.    Tax Planning is NOT difficult. Tax Planning is easy. It can be practiced by everyone and with a very little time commitment as long as one is organized with their finances.