IMPORTANCE OF TAXES
The government of every country needs funding to aid it in carrying out necessary functions and duties. These involve functioning of public institutions, developing the country’s infrastructure and financing public welfare initiatives and schemes. In exchange for providing these facilities, a government generates the revenue required for them by taxing its citizens.
Taxing has been the primary source of revenue for states across the world for centuries and India is no exception to this. Our country has structured tax system that employs both progressive and proportional taxation based on income and different other factors. It is determined by central and state governments. The money received by the government is known as tax revenue and may be used for a board od spectrum of purposes like development of infrastructure in the form of roads, railways, bridges, dams, etc public, healthcare, education, defence and civil services, etc. Helping the government fulfill its goals of development is the main purpose of taxes. To make this process smooth, every country has a proper process of taxation that is laid out by its government. In India, with its huge distribution of income earners and sources of revenue is no different. It gives value in the importance of taxes across the board of marks an important difference between types or taxes.
Let’s see and understand in detail about the tax system of India, the importance of texes in the country and how can you save income tax in India.
TYPES OF TAXES IN INDIA:
From income tax to custom duty, there are a variety of taxes that apply to citizens of India under the country’s taxation system. However almost all taxes under the Indian Taxation System can be primarily differentiated into 2 categories.
Direct Taxes: These kind of taxes are levied directly on the taxable income generated by individuals and corporations. The importance of these taxes are they are paid to government directly. This makes up a significant portion of India’s tax generated revenue. An important point to note here is that while they are called ‘direct’ taxes, the duty of submission of these tax amounts rests on the taxpayers themselves. Some of the very crucial direct taxes are the income tax, corporate tax, capital gains tax, property tax, entitlement tax, etc.
Indirect Taxes: This is the other form of taxes that are not levied on a taxpayer’s income directly when they avail or buy goods and services. These taxes are involved and paid by the consumer to the service provider or seller of goods. The same amount is paid then by these parties to the government. That is the reason it is called ‘indirect’. One of the most important indirect taxes is Goods and Services Tax (GST0 which has a huge number of indirect taxes that used to exist before 2017. Apart from GST, there is Dividend Distribution Tax, Custom Duty, Securities Transaction Tax.
IMPORTANT OF DIRECT TAXATION:
Direct taxation is one of the main sources of income to the government.
It also affects inflation, demand and supply within the economy by controlling disposable incomes across the board.
Luxury goods and services are the most affected by this regulation and so, the tax rates have to find a balance between providing administrative funds, limiting inflation and leaving enough disposable income to encourage utilisation.
Deductions on certain services such as insurance or some types of loans will bring individuals and organizations to invest in the Indian economy and generate usable capital.
This will let in for greater stability in the economy while also providing stakeholders with a greater degree of financial security.
More capital flowing into the country will increase revenue and in turn affect tax collection, providing the government with a higher budget for expenditure on developing the nation’s infrastructure, as well as its natural, man made and human resources.
IMPORTANCE OF INDIRECT TAXATION
Indirect taxes have been put in place to ensure that resources are used efficiently by individuals and organizations as lower expenditure on raw materials will mean lower margins lost on taxes.
In turn, lowered costs of production will increase profits and foster healthy competition among rival organizations resulting in development the economy.
This also gives consumers with a wider variety of options catered to their requiremnts, facilitating improvements in standards of living.
The burden of taxation falls on the consumers in the end, as most retailers, manufacturers and service providers will attempt to recover taxes on initial expenses in the sales price itself.
Hence the importance of taxes of this kind lies in how it incentivizes organizations to make their operations as efficient as possible.
The importance of taxes can be seen in many ways. The regulation affects the ebb and flow if the economic activities. Proper governance of tax system and the efficient collection of payments will provide governments with required amount of funds to invest in improving the entire quality of life withing their borders.