Taxes is something in India which is talked most when talking about finance and often seems too complex to understood by most. So they just leave it all. Here we give an effort to make it little simple to make you understand it in the layman terms.
What are taxes and Why we need to pay them ?
Taxes are compulsory fees levied on individuals or corporations, enforced by a government entity – whether local, regional or national – in order to finance government activities, to fund public works and services and to build and maintain the infrastructures used in a country.
In short, Govt takes a part of your earned money to fund its services for you. This has been going since ancient times of kingdoms where farmers give their produce to the king in order to maintain armies and protect their lands.
How the tax is charged ?
Tax is of two types in India – Direct & Indirect.
Direct Tax is paid directly to the Govt. Income Tax is one such main direct tax paid on an annual basis of your earnings by any source between 1 April to 31st March, also called the financial year.
- No tax for individuals with annual income less than ₹ 2,50,000
- 5% tax with annual income ₹ 2.5 lacs to 5 lacs
- 20% tax with annual income ₹ 5 lacs to 10 lacs
- 30% tax if more than 10 lacs
Indirect Taxes is the GST (Goods & Services Tax) recently implemented in India which follows the principle One Tax, One Nation, One Market. Any good or service we buy from market, we are paying the indirect tax for it already. From a pencil to the car, its included in the cost we buy from it from the market.
Why people don’t like to pay taxes ?
Its quite simple, most people don’t pay income tax in India to have more wealth. As desires increase, more money is needed to spend it so less of taxes.
That’s why most people don’t keep surplus money in banks as money in banks needs to be accountable to the Income Tax Department. They keep it in cash form.
What is black money ?
Black money is any money in terms of law whose tax is not paid to the government and the source of money is not defined or is illegal by country laws.
Most dealing of drugs, illegal alcohols, prostitution etc is held without any accountability and its source cannot be defined to banks or govt. So it is black money.
To save corporate taxes, most corporate heads don’t show every production in accounting books, that is regarded as black money as per law.
Is paying taxes justified ?
Yes & No. Tax is paid for the betterment of the country. But if the administrators don’t use for the betterment, instead use it for self consumption, its a big foul for all.
- A lot of politicians of India have put a lot of hard earned tax in Swiss Bank, a bank in Switzerland which does not disclose the source or amount to anyone.
- There are about 4000 MLAs and 543 MPs in India, who chucks out 40-50 crores every month, even when their roles and responsibilities are not defined in the Constitution.
- Non Performing Assets or Bad Loans – the money people take from Banks and don’t return back stands at Rs. 10 Lakh crores, which gets recovered from our taxes.
- A lot of funds is allotted for Govt schools and Govt hospitals, but the real amount is 1/10th of the allotted as all the money is smartly taken over by middlemen.
All this is your tax money which is being used. There is no other money. In short, Govt need to build systems to check the usage of money rather than increasing tax slabs. If the above leakages are fixed and the tax money is used for the right purposes, then its a relief for everyone.
To pay or not to pay ?
You cannot have a registered business or job without paying taxes. So you cannot avoid it. You also don’t need to pay all taxes from income. There are various smart ways to pay adequate taxes and still save money.
To be smart is important, at the same time, raising the voice to work on system is also important. We are citizens of the country and we have to pay right taxes to fund the economy and the infrastructure of the country.
Everyone is a Taxpayer
Whatever profession you are in, you have to file taxes, either to take any loans or show bank records. Today, with the help of technology, a lot can be done online easily. Cleartax is one popular service. There are many legal ways, specified by the Govt itself, where you can save on taxes. A experienced CA (Chartered Accountant) nearby would help you do so.
India’s present Prime Minister, Narendra Modi has done a lot of reforms to help fix the leakages and use the public money for a good cause. We expect and hope that a lot more will be done for our future generations in India.