DIRECT TAX

DIRECT TAX

Subject : Economics

Context : The Centre’s direct tax collections, net of refunds, were estimated at Rs 9.45 lakh crore during 2020-21, around 5% higher than the revised estimates of Rs 9.05 lakh crore for the financial year, the government said.

Concept :

• A direct tax is a tax that a person or organization pays directly to the entity that imposed it.
• An individual taxpayer, for example, pays direct taxes to the government for various purposes, including income tax, real property tax, personal property tax, or taxes on assets.
• There are also indirect taxes, such as sales taxes, where a tax is levied on the seller but paid by the buyer.

Corporate Tax:

• It is levied on a firm’s profit by the government.
• It is taxed on operating earnings after expenses have been deducted.
• The rate of corporate tax in India varies from one type of company to another i.e. domestic corporations and foreign corporations pay tax at different rates .

Dividend Distribution Tax (DDT):

• Dividend refers to the distribution of profits to shareholders of a company.
• Thus, the dividend distribution tax is a type of tax that is payable on the dividends offered to its shareholders by the corporate.
• Higher dividends mean a greater tax burden for the corporate entity.

Minimum Alternate Tax

• At times it may happen that a taxpayer, being a company, may have generated income during the year, but by taking the advantage of various provisions of Income-tax Law (like exemptions, deductions, depreciation, etc.), it may have reduced its tax liability or may not have paid any tax at all.
• Due to an increase in the number of zero tax paying companies, Minimum Alternate Tax (MAT) was introduced by the Finance Act, 1987 with effect from assessment year 1988-89. Later on, it was withdrawn by the Finance Act, 1990 and then reintroduced by Finance Act, 1996.
• MAT is an important tool with which tax avoidance can be prevented.