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What is Tax Liability

Introduction

A government collects taxes from its citizens to improve the country’s economy and the standard of living for its people. In this respect, individuals and businesses earning incomes are duty-bound to pay taxes to the government according to the Indian income tax law. And the taxes pay vary on your sources of income.

Additional Read: How to save taxes for salaried individuals

What is tax liability?

Tax liability is a sum of money you are required to pay to the tax authorities. It is the total amount of money you are accountable to pay as income tax liability to the government from earnings such as salary, business, interest on income from investments, capital gains, lottery winnings, etc. Tax liability includes liabilities of the current financial year and types of taxes you are due to pay the income tax department for all the years. While the income tax liability is mainly for individual taxpayers and Hindu Undivided Family (HUF), there’s another tax liability, the corporate tax liability, that solely focuses on corporations in India.

What is corporate tax liability?

According to corporate tax law, the corporate tax liability is a legal obligation for companies to pay taxes on their annual revenues. If a company is incorporated in India but has operations in other countries worldwide, the company is obligated to pay Tax in India. However, section 90 and 91 of the Indian Domestic Tax Laws has created a provision to eliminate double taxation for companies that bear a tax liability in India and the foreign jurisdiction.

Figuring out how much taxes you or your business owes the government starts with knowing the types of taxes:

Income Tax

Income Tax is the tax charged by the government on your earnings through annual remuneration, pension, interest on investments, income from rental properties, etc., during a financial year. The government also levies income tax on business owners or self-employed, doctors, freelancers, lawyers, charted accountants under the same purview.

The income tax is systematized to suit various revenue categories. Here’s the income tax slab for the financial year 2020-21 (The assessment Year 2021-22):

Total Income (Rs)

Tax Rate

Up to 2,50,000

Nil

From 2,50,001 to 5,00,000

5%

From 5,00,001 to 7,50,000

10%

From 7,50,001 to 10,00,000

15%

From 10,00,001 to 12,50,000

20%

From 12,50,001 to 15,00,000

25%

Above 15,00,000

30%

Additional Read: All about Income Tax in India: Basics, tax slabs and e-filing process

Corporate Tax

Corporate tax is the taxes paid on the income earned by domestic companies and foreign companies operating in India. While the domestic companies are taxed on the full payment, foreign companies are taxed only on the nature of income earned in India. Corporate taxes include health and education cess, minimum alterative tax, dividend distribution tax, and fringe benefits tax.

Tax slabs depend on the turnover of the company’s operations. The income tax rates applicable in the case of domestic companies for Assessment Year 2021-22 and Assessment Year 2022-23 are as follows:

Domestic Company

The assessment Year 2021-22

The assessment Year 2022-23

Where its total turnover or gross receipt during the previous year 2018-19 does not exceed Rs. 400 crore

25%

NA

Where its total turnover or gross receipt during the previous year 2019-20 does not exceed Rs. 400 crore

NA

25%

Anny other Domestic Company

30%

30%

Securities Transaction Tax

Securities Transaction Tax (STT) is a tax imposed on the purchase and sale of securities listed on Indian stock exchanges. Equities, options, futures, mutual funds, debt instruments, scrips, and debentures are taxable securities. You pay the tax on the transaction value.

Capital Gains Tax

Capital Gains Tax is the tax levied on the amount of profit earned from a property or investment sale—for example, stock investments and real estate. You do not pay any capital gains on the inherited property as there is no sale but only a transfer of ownership. However, if the property owner decides to sell the property, the capital gains tax will become applicable.

Additional Read: Income Tax vs. Capital Gains Tax: What’s the difference?

Prerequisite Tax

Prerequisite Tax is a benefit that an employee earns from a job position in a company. It is a non-cash benefit an employee receives from an employer in addition to the annual remuneration. Rent-free accommodation, paid domestic help, accessible water supply, free electricity are some prerequisites. It is counted as facilities provided by the organization. You pay tax no matter. 

Indirect Taxes

Indirect Taxes are taxes that apply to the price of products and services to the customer. Sales Tax, customs duties, entertainment tax, excise duty are some examples of indirect taxes. The government collects it from a retailer or manufacturer who imposes it on the customer who purchases the good or service.

Conclusion

Tax liability is something that every responsible citizen in the country will have to adhere to. If you skip or fail to pay your taxes to the government, it will lead to severe penalties. To help simplify tax calculations for you, the Income Tax department has introduced e-calculators. Make sure to pay your tax liabilities in time.

Additional Read: What are the benefits of filing an income tax returns on time

Disclaimer

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

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