The Indian tax system is divided into direct and indirect taxes. Direct taxes are taxes that are levied directly on the income or wealth of individuals or businesses, such as income tax and wealth tax. Indirect taxes are taxes that are levied on the sale of goods and services, such as value-added tax (VAT) and service tax. The central government and state governments both have the power to levy and collect taxes, with the central government having jurisdiction over direct taxes and the state governments having jurisdiction over indirect taxes.
- Types of Taxes
There are two types of taxes:
i. Direct Tax
A direct tax is a tax that a person or organisation pays directly to the government. Direct taxes are imposed on income and profits.
For example, an individual taxpayer pays direct taxes to the government for various purposes including income tax, real property tax, personal property tax, or taxes on assets.
ii. Indirect Tax
Indirect taxes are levied by the government on the consumption of goods and services.
It is not directly paid but it is included in the final price of the products and services.
For example, if the final price of toothpaste is Rs. 50, then Rs. 45 is the selling price of the toothpaste while Rs. 5 is the indirect tax levied by the government. - GST (Goods & Services Tax)
GST is an indirect tax that was implemented by the Indian Government on 1st July 2017 to replace a host of other indirect taxes such as value-added tax, service tax, purchase tax, excise duty, and so on.
Before the introduction of GST, businessmen had to face complications because of the high number of taxes and their cascading effect.
To make the tax filing easy for the Indian taxpayers, the government merged all the indirect taxes in GST.
The main aim of this taxation system is to curb the cascading effect of other indirect taxes and it is applicable throughout India.
There are two categories of GST:
i. CGST (Central Goods and Services Tax) + SGST (State Goods and Services Tax)
• It is a tax levied on the intra-state (inside the state border) supplies of both goods and services.
ii. IGST (Integrated Goods and Services Tax)
• It is a tax levied on all inter-state supplies of goods and services.
GST is applicable all over India.
- GST Audit
GST is an important part of every type of business. Therefore, GST audit is conducted to check/verify:
Integrity of a company
Calculations of GST
Tax liability
It becomes mandatory to conduct a GST audit for a business having more than Rs. 2 crore annual turnover. Generally, a business has to conduct a GST audit before 31st December of every year.
If a business does not submit the report of its GST audit before 31st December, then heavy interest and penalties might be imposed on the business.
During a GST audit, the auditor mostly focuses on a business’s sales and purchases rather than its functioning. During this, the auditor checks:
Sale & purchase registers
Stock register of the business
Expense details to do sales and purchase
Calculation of yearly payable tax to the government - GST Exemption
The government has issued a list of such items that are exempted from GST. This means if you sell or purchase such items, then you do not need to pay GST.
Following are these items
Service by an employee to the employer (employees’ salaries)
Funeral/burial/crematorium
Sale of land • Sale of completed buildings
Service by any court/tribunal (fees related to legal cases) - GST – Transportation of Goods and Services
Transportation is an important factor for running a business. Many times, you have to transport your products to other states or purchase products from other states. To track this transport, the government has developed a concept called the “E-Way Bill.”
An E-Way Bill is a type of supporting documentation that includes:
Details of suppliers
Product specifications & quantity
Transporter details including vehicle number, model, etc.
E-Way Bill should be uploaded to the GST portal before the transportation starts. The E-Way Bill concept helps the government to classify the GST.