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In the Indian Tax System, there are many different taxes. Broadly speaking, there are two main categories: Direct Taxes and Indirect Taxes. However, when we delve deeper, we learn that there are several subtypes and specific taxes under each category, depending on the nature of the income, transaction or goods and services involved.
In this blog post, we shall shed some light on how many types of taxes are there in India. If you’re a taxpayer, knowing all the different types of taxes is crucial for you!
Direct Tax refers to the tax that individuals and businesses pay directly to the Indian Government. The Central Board of Direct Taxes (CBDT) manages the Central Board of Direct Taxes under the Central Board of Revenue Act 1963. The Government of India imposes direct tax on income or profit earned in a financial year.
In India, various types of direct taxes exist. Some of the major types are as follows:
Income tax is a type of direct tax in India. Basically, it is charged on an individual or business’ annual income earned in a financial year. The Income Tax Act 1961 governs the income tax in India.
However, from 1st April 2026, the Income Tax Bill 2025 will replace the 1961 Act. Generally, the Government of India collects income tax at the time of ITR filing.
Corporate tax is a type of direct tax that is paid by businesses. In India, private and public companies registered under the Companies Act 2013 are liable to pay corporate tax. For domestic companies in India, the corporate tax rate applicable is 25%. However, the corporate tax rate for foreign companies is 35%.
This tax is levied when a person sells assets like shares, property or a business. It is calculated by subtracting the purchase price from the selling price. Capital gains tax is further categorized into two types: short-term and long-term.
Short-term capital gains tax applies when assets are sold within 12 months (for listed shares and equity mutual funds) or within 24 to 36 months (for other assets like real estate or unlisted shares) and is typically taxed at a higher rate.
However, when we talk about long-term capital gains tax, it applies when assets are held for more than these periods, over 12 months for equities and over 24 to 36 months for other assets. It is taxed at a lower rate and often comes with indexation benefits or exemptions.
The Securities Transaction Tax is levied on transactions involving securities, including stocks, mutual funds and derivatives, that take place on officially recognized Indian stock exchanges like National Stock Exchange and Bombay Stock Exchange.
Since STT is imposed directly on the transaction value, it raises the price of purchasing and selling securities.
A gift tax is a type of transfer tax. It is imposed when an individual gives something of value to another individual. A gift of any form of cash, cheque or property attracts gift tax if its value exceeds Rs. 50,000.
Indirect tax is the tax levied on the consumption of goods and services. It is not directly levied on the income of a person. Instead, he/she has to pay the tax along with the price of goods or services bought by the seller. The person paying the tax to the government and the person bearing the liability to pay the tax are thus, two different people.
The following are the different taxes in India that are considered to be indirect taxes:
Sales tax is a type of consumption tax imposed on the sale of goods and services. It is typically calculated as a percentage of the retail price and collected at the time of purchase. In addition to the state-level sales tax, local and municipal authorities may also impose their own sales taxes, which are added to the total amount payable by the buyer.
Goods and Services Tax, abbreviated as GST, is a kind of tax levied on the supply of goods and services. It is a destination-oriented, multistage tax that is applied to all value additions.
The GST Act 2017 governs how goods and services tax is levied, collected and administered across India. The Act ensures a uniform tax structure for the supply of goods and services.
Customs Duty is a tax imposed on goods when they cross international borders. Its primary purpose is to protect a country's economy, employment, environment and citizens by controlling the import and export of goods, particularly those that are restricted/prohibited.
Each product is subject to a specific rate of duty determined based on several factors such as the origin of the item, the country where it was manufactured and the materials used in its production.
Additionally, under Indian customs regulations, any item brought into the country for the first time must be declared. This includes goods purchased abroad as well as gifts acquired outside India.
In India, the Entertainment Tax is levied by the government on feature films that receive a wide release and it is deducted from their gross collections. The tax also applies to major commercial events and large private festivals.
Value Added Tax is a widely used indirect tax imposed on the sale of goods and services. It is collected by producers or sellers at each stage of the supply chain and paid to the government.
VAT is applicable only to intra-state transactions, meaning both the buyer and seller must be located within the same state. In India, products like petrol and liquor are subject to VAT. The VAT rate varies from one state to another.
There are two broad categories of tax in India: Direct Tax and Indirect Tax. Direct taxes are taxes that the government directly imposes on individuals and businesses. On the other hand, indirect taxes refer to taxes levied on the consumption of goods and services. Examples of direct tax are income tax, corporate tax, gift tax and securities transaction tax. Examples of indirect tax are sales tax, goods and services tax, customs tax and value added tax.
Want to file your income tax return? Connect with Registrationwala’s Chartered Accountants for assistance in ITR filing!
Q1. What is the tax classification in India?
A. In India, taxes are broadly classified into two major categories: (i) Direct Tax and (ii) Indirect Tax.
Q2. Why do businesses need GST Registration?
A. GST registration is required by businesses to ensure compliance with tax regulations.
Q3. How many taxes in India?
A. India has numerous taxes but they can be grouped mainly into two categories: Direct Taxes and Indirect Taxes.
Q4. Is Capital Gain Tax a direct or indirect tax?
A. Capital Gain Tax is a direct tax. It is levied directly on the income/profit earned by an individual/entity from the sale of capital assets such as property, stocks or bonds.
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