The Government of every country requires funding to aid it in carrying out its necessary functions and duties. These include operating public institutions, developing the country’s infrastructure and financing public welfare initiatives and schemes. In exchange for providing these amenities, a government generates the revenue required for them by taxing its citizens.
To make this process efficient, every country has a proper taxation process laid out by its government. India, with its wide distribution of income earners and sources of revenue, is no different. It places value in the importance of taxes across the board and marks an important distinction between its major types of taxes.
Let us discuss in more detail the Indian tax system, the importance of taxes in the country and how you can save income tax in India.
Tax System in India
India has a structured tax system and the importance of taxes are defined by two attributes - progressive and proportional. It is progressive in that the tax is levied at increasing rates to increasing brackets of income and revenue. Meanwhile, it is proportional in that the rate of tax levied is in proportion to the amount of income or revenue it is being levied upon.
Any changes in tax rates, brackets and slabs are determined largely by the central and state governments and must be accompanied by a law passed by the Parliament or State Legislature.
Types of Taxes in India
From income tax to custom duty, there are a variety of taxes applicable to Indian citizens under the nation’s taxation system. However, almost all taxes under the Indian taxation system can be primarily distinguished under two categories: direct and indirect taxes.
Some of the most important direct taxes are the income tax, corporate tax, capital gains tax, property tax, entitlement tax and such.
One of the most important indirect taxes is the Goods and Services tax (GST) which has subsumed a large number of indirect taxes that existed before 2017. Apart from GST, there is also Dividend Distribution Tax, Custom Duty, Securities Transaction Tax and such.
Importance of Taxes
Now that we understand the types of taxes in the Indian tax structure, let us review the importance of taxes as understood by this distinction.
Importance of Direct Taxes
Direct taxes display the importance of taxes by reducing income equalities with its progressive tax structure. Citizens are taxed in proportion to their economic circumstances, thereby encouraging social and economical equality.
Moreover, with direct taxes, taxpayers remain aware of how much tax they can be expected to pay in a financial year and prepare well in advance. Direct taxes are also useful in controlling inflation as any change in their rates can help in regulating demand and supply in the economy.
Importance of Indirect Taxes
The importance of taxes for the government when it comes to indirect taxation is that they are an automatic function that accompany the buying and selling of goods and services across the country. They are therefore easy to collect and convenient for both taxpayers and the tax collection authorities.
They also help broaden the country’s net of tax liabilities, gathering contributions from those sections of society that are otherwise exempted from direct tax.
While the importance of taxes to the country’s government cannot be overstated, the central government also makes various provisions to help citizens save income taxes in India. One of the most effective means of saving income tax in India while safeguarding the financial future of your loved ones, is to avail a trusted term insurance plan.
To that end, consider availing the iSelect+ Term Plan from Canara HSBC Oriental Bank of Commerce Life Insurance. This term insurance plan provides a bevy of useful features such as extensive coverage options and add-on covers. Moreover, it also helps you save income tax in India by availing deductions of up to Rs. 1.5 lakh in a financial year under Section 80C.
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