India, a country known for its rich history and diverse culture, has an equally diverse and complex system of taxation. This system, which has evolved over time, is a fascinating blend of historical influences, constitutional mandates, and modern economic realities.

The story of taxation in India begins with the Constitution, which empowers both the Central and State Governments to levy taxes. This power is not absolute, however, as Article 265 of the Constitution mandates that “No tax shall be levied or collected except by the authority of law.” This means that every tax must be backed by a law, passed either by the Parliament or the State Legislature.

In this blog we will learn more about the taxation system in India, its types and the applicable tax slabs for citizens on personal income and on purchase and sale of goods and services.

Types of Taxes in India

Primarily the taxes in India can be divided into two categories 

Direct Taxes:

A direct tax is a type of tax that is paid directly by an individual or organization to the imposing entity. A taxpayer, for example, pays direct taxes to the government.

In India, the primary forms of direct taxes include:

Income Tax: 

This is a tax imposed on the financial income of individuals and businesses. The tax rate, often referred to as the income tax slab, fluctuates based on the income level of the individual or business entity.

Corporate Tax: 

This tax is applied to the profits earned by companies. The rate of corporate tax is contingent on the size of the company.

Capital Gains Tax: 

This tax is charged on the profits accrued from the sale of assets, which can include stocks, bonds, and real estate. The rate of capital gains tax is dependent on the type of asset sold and the duration for which it was held.

Indirect Taxes:

Indirect taxes are initially paid to the government by an intermediary, who then adds the amount of the tax to the value of the goods or services being sold, and passes this charge onto the consumer. The burden of the tax is thus ‘indirectly’ borne by the final consumer. 

In India, the primary forms of indirect taxes include:

Goods and Services Tax (GST): 

This tax is imposed on the sale of goods and services. The rate of GST fluctuates based on the nature of the goods and services involved.

Customs Duty: 

This tax is charged on goods that are imported or exported. The rate of customs duty is contingent on the type of goods being transported across borders.

Excise Duty: 

This tax is levied on goods produced within the boundaries of India. The rate of excise duty varies depending on the type of goods manufactured.

Service Tax: 

This tax is applied to the provision of services. The rate of service tax is dependent on the type of services rendered.

What are income tax slabs?

Income tax is a tax levied on the income of individuals and businesses. The income tax slab varies depending on the income of the individual or business. 

As per the announcement in the budget of 2023, Individual taxpayers can choose between the new income tax regime and old income tax regime for filing their income tax returns. 

The current income tax slab for individuals accordingly is as follows:

Old Tax RegimeNew Tax Regime u/s 115BAC
Income Tax SlabIncome Tax RateIncome Tax SlabIncome Tax Rate
Up to ₹ 2,50,000    NilUp to ₹ 2,50,000Nil
₹ 2,50,001 – ₹ 5,00,000    5% above ₹ 2,50,000₹ 2,50,001 – ₹ 5,00,0005% above ₹ 2,50,000
₹ 5,00,001 – ₹ 10,00,000₹ 12,500 + 20% above ₹ 5,00,000₹ 5,00,001 – ₹ 7,50,000₹ 12,500 + 10% above ₹ 5,00,000
Above ₹ 10,00,000 ₹ 1,12,500 + 30% above ₹ 10,00,000₹ 7,50,001 – ₹ 10,00,000₹ 37,500 + 15% above ₹ 7,50,000
  ₹ 10,00,001 – ₹ 12,50,000₹ 75,000 + 20% above ₹ 10,00,000
  ₹ 12,50,001 – ₹ 15,00,000₹ 1,25,000 + 25% above ₹ 12,50,000
  Above ₹ 15,00,000₹ 1,87,500 + 30% above ₹ 15,00,000

The current income tax slab for businesses is as follows:

ConditionIncome tax rate (excluding surcharge and cess)
If turnover or gross receipt in FY 2020-21 exceeds Rs 400 crore30%
If turnover or gross receipt in FY 2020-21 does not exceed Rs 400 crore25%
If opted for section 115BA25%
If opted for section 115BAA22%
If opted for section 115BAB15%
Any other domestic company30%

What is TDS (Tax Deduction at Source)? 

Tax Deduction at Source, or TDS as it’s commonly known, is a way of collecting income tax in India.

Think of it like this: when you earn income, whether it’s your salary, interest from your savings, or payment for a service you’ve provided, the person or company paying you takes a small portion of that amount and pays it directly to the government on your behalf.

That’s why it’s called “Tax Deduction at Source” – the tax is deducted right at the source of your income.

The idea behind TDS is to ensure that the government receives tax more regularly and that it’s easier for you to pay because it’s done in small amounts throughout the year rather than in one large lump sum. Plus, because the tax is collected at the time of the transaction, it helps prevent tax evasion.

Remember, the amount of TDS deducted depends on the income type and the rates set by the income tax department. At the end of the financial year, you can adjust this amount against your total tax due. If too much tax has been deducted at source, you can even claim a refund.

What is GST? 

Goods and Services Tax (GST) is a tax levied on the sale of goods and services in India. It was introduced on July 1, 2017, and replaced a number of existing indirect taxes, such as excise duty, service tax, and value-added tax (VAT).

There are three types of GST which are levied by the government 

Central Goods and Services Tax (CGST):

Portion of Tax which is paid to the central government on intrastate sales of goods or services.

State Goods and Services Tax (SGST): 

Portion of Tax paid to the state government on intrastate sales of goods or services.

Integrated Goods and Services Tax (IGST):

Tax for interstate sales of goods and services.

What are the different slabs in GST?

In India, the Goods and Services Tax (GST) is categorized into four slabs: 5%, 12%, 18%, and 28%. 

The tax rate for a particular good or service depends on its nature, category, and usage.

Here is a table of the GST slabs and the types of goods and services that fall under each slab:

GST Slab Rate (%) Items
Nil Rate0%Essential commodities, such as food grains, pulses, and milk
5% Rate5%Food items, such as fruits, vegetables, and eggs; clothing; footwear; and services such as banking, insurance, and education
12% Rate12%Electronics, such as televisions, refrigerators, and washing machines; and services such as restaurants and hotels
18% Rate18%Automobiles, such as cars and motorcycles; luxury goods, such as jewelry and watches; and services such as air travel and telecom
28% Rate28%Goods such as tobacco and aerated drinks; and services such as gambling and lotteries

Note: The above list is not comprehensive