Tax is the prime source of income for the entire nation. The foundation of a country lies totally on the money collected as tax. The system of taxation is available from a long time back when there is sovereignty rule over all the countries. Back then the ruler would charge taxes as they please and there was no fixed rule about that. But this procedure is no longer valid in the present days we have the right to get a clear explanation of the amount and why that amount is being taken from the individual. There is always a fixed amount of tax played on the basis of the salary amount of the individual. This way there will be a balance in paying tax between the richer and poorer people in our society. As paying tax has become an obligatory contribution to the entire city in a country, the main function of the money collected by the government is to provide all the necessary public support. From constructing infrastructure like school, college, hospitals to providing free schemes for the poor everything falls under this tax collection.
Categorizing tax system
Tax is primarily divided into two types which are direct tax and indirect tax. As the name implies the direct tax is paid directly to the tax office by us like the income tax, corporate tax, wealth tax, etc and the indirect tax includes service tax, sales tax, value-added tax, etc.
Types of direct tax
- Income tax: this tax is more or less everyone knows about but it is hard to understand its procedure. This tax is imposed on the one year salary of an individual. Income tax is applicable to the companies and the employees working in it. There is a lot of aspects to consider in income tax like the tax slab, taxable income, tax deducted at source (TDS), etc. The tax paid by an individual mainly depends on the tax bracket which is a range of no tax to 30% tax for the highest income category.
- Corporate tax: it is the income tax paid by a company from the profits they earn. This type of income tax also collected in different types of tax brackets. The company tax bracket ranges from 1crore revenue per annum to higher than that. If a company profits for 1 core per annum then they don’t have to pay any income tax but if the revenue is more the company would pay accordingly.
- Securities transaction tax: there is a lot of cash flow in the stock market and if we know how to buy and to sell stock at the right time. We can always make a decent amount of money by that knowledge. This kind of income also has a tax of its own. Every time we buy or sell stock this security transaction tax is imposed on it.
Types of indirect tax
- Sales tax: it is one of the widely known indirect tax systems as the name implies the tax imposed on the product we sell. This tax can be imposed on both the product sold in our country or exported outside out of it. This tax system is imposed in part the seller adds an amount as a tax while selling the goods. This amount is added to the price of the goods when it is finally sold to the consumer
- Service tax: as the name suggests tax imposed on the service provided on various occasions. In various companies, this service tax collected once every month depends on the performance of the employee and the amount was fixed based on that.
- Value-added tax: this tax is implied on all the stages of the supply chain from the manufacture to the end-stage that is the consumer everyone is recruited in it.
Tax calculator works depending on the population, age, employment in a particular area. The total amount of tax collection depends solely on these features of that particular area.
Other than that the tax calculator is used for both the calculation of the income and sales tax. Although the income tax changes very little over time but the sales tax rate can change if the area gets more populated or the price of the product changes due to any situation.